Crypto markets are drifting sideways as escalating Middle East tensions weigh on sentiment, interrupting what had been a gradually improving macro environment, according to digital asset manager Grayscale.

In its latest research note, the firm said the Iran conflict has become the dominant market driver, eclipsing earlier signs of strengthening global growth and expectations that central banks could begin easing policy. That outlook has been undermined by a surge in oil prices, which has revived inflation concerns and pushed interest rate expectations higher, dampening demand for risk assets and keeping investors cautious.

Since the escalation, crypto assets have seen heightened volatility but limited directional follow-through, with prices reacting sharply to headlines tied to energy markets and broader risk sentiment. Bitcoin initially fell into the mid-$60,000s during the first phase of tensions, later rebounding toward the low-$70,000s before slipping again as the conflict persisted and macro conditions tightened.

More recently, renewed escalation has pushed bitcoin roughly 10% below its March highs, with ether and other tokens also declining as investors reduced exposure. Despite this, crypto markets have shown relative resilience. Bitcoin has remained broadly flat since the conflict began and has at times outperformed equities, underscoring both its macro sensitivity and underlying strength.

Grayscale expects many investors to remain on the sidelines in the near term, waiting for greater clarity on geopolitical developments and oil price trends. A de-escalation, coupled with easing energy prices, could quickly improve the macro backdrop and support a recovery in risk assets. On the other hand, persistently elevated oil prices may continue to pressure economic growth and delay a broader rebound.

Even amid the uncertainty, crypto valuations have held up relatively well, suggesting that a more durable bottom may be forming. The firm also highlighted ongoing inflows into spot crypto investment products and increased activity in derivatives markets as signs that risk appetite is beginning to stabilize beneath the surface.

Looking ahead, Grayscale said that a reduction in macro uncertainty will be key to unlocking the next sustained rally. At the same time, it emphasized that the long-term fundamentals of the asset class remain intact, particularly the continued growth of stablecoins and tokenized assets.

The stablecoin sector has expanded significantly, with total supply rising from about $20 billion in 2020 to over $300 billion by 2025, and currently sitting near $315 billion. Around $100 billion of that growth came in 2025 alone, reflecting renewed expansion after a brief slowdown and strong demand for dollar-pegged assets across trading, payments, and on-chain finance.

According to the report, periods of heightened uncertainty like the current environment have historically created compelling opportunities for long-term investors positioning for the next phase of growth in digital assets.