Financial markets are tumbling amid geopolitical tension arising from the crisis between Russia and Ukraine. The impact of yesterday’s invasion alongside the sanctions imposed on Russia’s economy by the United States and its allies has forced investors to search for a new safe haven to protect their assets. After Ukraine declared a state of emergency on Wednesday, the S&P 500 nosedived for the fourth consecutive trading session, Nasdaq composite similarly plunged by 2.6% while major tech stocks continued the downtrend. With traditional asset classes struggling to stay afloat, how has the crypto market reacted?
Bitcoin and Ether hit one-month lows following the invasion, with the former sliding by 6.2% to $35k while the latter briefly traded around $2350. They have however surged upwards since then, with bitcoin trading at $38k and Ether at $2626 at the time of writing. Despite the brief bloodbath, analysts suggest that investors are most likely to turn towards bitcoin and the cryptocurrency sphere as conventional in-risk assets continue to bear the brunt of the geopolitical tension. Circle co-founder, Jeremy Allairre earlier stated that his company recorded increased demand on exchanges for USDC, its dollar-pegged stablecoin; therefore leading to a spike in price. Other major stablecoins including Fei USD and Liquidity USD recorded similar gains in price and market capitalization amid the Russia-Ukraine saga. The increased demand for stablecoins appears to many as a strong indicator of a corresponding surge in bitcoin demand and price.
The current situation is very reminiscent of the economic meltdown that followed the Covid-19 pandemic where inflation rates soared and major stocks dipped. Asset classes that are decentralised, devoid of, or offer stiffer resistance to government policies are often the go-to haven for investors. Between March and August 2020, bitcoin price tripled despite the devastating impact of the pandemic. Bitcoin trading volume across the top ten exchanges also hit an average of $2.5 billion daily, its highest since 2018 within the same period according to Decrypt. The pandemic also saw a record high in Bitcoin-related Google searches as interest in the digital asset spiked.
Bitcoin’s resilience to global economic meltdowns has been proven over time and this will definitely entice investors with yet another on the cards. Should world leaders fail to reach a diplomatic resolution with Vladmir Putin and Russia, it is very likely that inflation rates will soar, since central banks will struggle to contain the impact of a war and its effect on the economy. While apex banks continue to print out fiat currencies, bitcoin’s dwindling supply which defies the logic of inflation gives it an overwhelming edge.
Another reason why we could witness a surge in bitcoin price is the need for investors to shield themselves from unpopular government monetary policies. Yesterday, the Ukrainian central bank enacted a moratorium on cross-border foreign currency payments. It also ordered financial service providers across the country to cease the issuance of electronic money.
The current assessment of global events point towards positive tidings for the cryptocurrency world and just like the peak pandemic era, the cryptocurrency market may be headed for yet another bull run.