How the Ukrainian crisis could affect Bitcoin and crypto

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A Ukrainian soldier in the trenches. Source: A screenshot of the video, Youtube / BBC News

Here’s how the crisis is Ukraine could affect the Bitcoin and the market for cryptocurrencies.

The downturn we have seen in recent weeks is largely the result of factors other than the tensions between Russia and Ukraine. Analysts tend to think that the armed conflict between Russia and Ukraine (and possibly their allies) is sure to have its impact felt. However, while potentially substantial, most impacts could be relatively short-term in their scope. The threat of armed conflict is a possibility, but at least it shouldn’t be feared by BTC holders, according to analysts.

A crisis is upon us. As we write these words, Russia is conducting military exercises along its border with Ukraine, while the United States has put some 8,500 of its troops on alert in case a war breaks out in Eastern Europe.

The tension between Russia and Ukraine over the latter’s possible accession to NATO has reached new heights in recent days, and while talks are underway between the representatives of the two nations, the situation remains decidedly uncertain. And given how interconnected the world has become in recent decades, the situation remains uncertain even for financial markets, including crypto.

Well, according to a wide range of analysts speaking to Cryptonews.com, the impact of the Ukraine-Russia crisis – and its potential worsening – on the cryptocurrency market may not be as dramatic as feared. However, this is largely due to the fact that other factors, especially macroeconomic ones, are weighing down the market at the moment.

The limited impact of the Ukrainian crisis on cryptocurrencies

Until now, the crisis has had some impact on the financial markets, including the crypto market. That said, most observers say the downturn we have seen in recent weeks is largely the result of factors other than the Russia-Ukraine tensions.

“While the crisis in Ukraine certainly has an impact on equity markets, it is important to note the confluence of multiple factors currently affecting the global economy. These include the continued spread of COVID-19, the negative labor and supply chain shock. , concerns about inflation, the Federal Reserve (Fed) announcing its intention to raise interest rates, and persistent economic inequality, “says Mark Elenowitz, the president of the fintech firm Horizon based in Zug.

He suggests that while the Ukrainian crisis may cause some concern among investors, the current downturn is likely rooted in much deeper and systemic trends. This is also the opinion of Marc Chandler, CEO of Bannockburn Global Forex, who says that aside from Russian and Ukrainian bonds (and the Russian ruble), the impact is “secondary at most”.

“Two reasons, I think: First, there are bigger immediate problems for investors like the Fed meeting and the aggressive tightening that many anticipate; plus the market was overvalued by most estimates. Second, look at what. it happened in February and March 2014 when Russia invaded Ukraine, took and annexed Crimea, “he told Cryptonews.com.

In 2014, Russia’s annexation of Crimea and forays into Ukraine effectively had a negative effect on equity markets around the world, with European and Russian markets in particular hardest hit. However, the effect was relatively short-lived, especially in the United States, where the S&P 500 ended the year at an all-time high.

In fact, most analysts say the crypto market should worry about other things right now.

“Equity markets and cryptocurrencies are falling mainly because they have risen a lot, particularly the US stock market,” said Mike McGlone, analyst at Bloomberg Intelligence. “I think the Fed has hit its limits, as indicated by 13% of the United States [indice dei prezzi alla produzione] which has reached a maximum in 40 years now”.

McGlone notes that the Federal Reserve has a mandate to fight inflation and that “cryptocurrencies are among the most speculative and inflated assets” out there, which means they are bound to suffer in the event of a sharp rise in interest rates. On the other hand, he argues that bitcoin is “the least risky crypto” and that it could eventually replace gold as a risk-free asset.

McGlone also accepts that the Ukrainian crisis has had some impact on cryptocurrencies, even if it wasn’t the main factor in the recent slips. This is also the view of analyst and author Glen Goodman, who points out that the cryptocurrency market has been highly correlated with smaller US stocks for many months.

“During the decline in January, bitcoin moved almost hand in hand with American small-cap stocks. The Ukrainian crisis is weighing on the valuations of most of the assets considered in the ‘risky’ category, which includes many stocks and almost all cryptocurrencies. “Glen Goodman told Cryptonews.com.

What if there is a war?

But while most analysts believe that the Ukrainian crisis so far hasn’t had a substantial impact on cryptocurrencies, they also tend to think that a direct armed conflict between Russia and Ukraine (and possibly their allies) is sure to have its impact felt. .

“If an armed conflict were to occur, the cryptocurrency markets could certainly see a significant decline, although in my opinion this is likely to be caused indirectly through the impact of the conflict on the oil and food markets. An armed conflict it would likely cause food shortages through supply chain disruptions,” said Mark Elenowitz.

He also suggests that sanctions imposed on Russia would likely have the effect of cutting a major pipeline to Europe, potentially causing gas and oil prices to rise.

“As cryptocurrencies have become much more related to traditional markets over the past couple of years, if these commodity prices are hit, cryptocurrency prices are likely to be affected in the short term as well,” he added.

Other observers say that, while potentially substantial, most of the impacts will be relatively short-term in their reach.

“History tells us that stock markets initially react poorly to armed conflicts involving Western countries, and we can expect crypto to follow the stock market down. But the good news is that the negative impact on markets tends to be. short-lived, “said Glen Goodman, who added that markets tend to recover rapidly once investors realize that Western economic growth continues unabated.

This is a fairly optimistic take, however some analysts don’t think the current Ukraine-Russia crisis can escalate into war.

“I think full-blown armed conflict is unlikely, but crude oil and wheat are appreciating due to the risks of one of the world’s largest crude oil exporters – Russia – threatening to invade one of the world’s largest crude oil exporters. wheat of the world – Ukraine,” said Mike McGlone.

For the CEO of Blockchain Coinvestors, Lou Kerner, the threat of armed conflict is a possibility, but at least it shouldn’t be feared by BTC holders.

“During times of war, gold does very well, so bitcoin should decouple from stocks and trade higher if the crisis descends into an armed conflict,” he told Cryptonews.com.

Bitcoin has long been regarded as “digital gold” by many analysts within the crypto sector, however some commentators continue to insist that it has more in common with stocks and other risk assets, meaning investors shouldn’t be so confident that he will remain unscathed if Russia and Ukraine blockade.

“I think cryptocurrencies have shown themselves more recently as a risk asset rather than as a hedge for inflation,” said Marc Chandler. “Maybe the asset class hasn’t been around long enough to see ‘long-term’ relationships.”

Recovery for bitcoin and cryptocurrencies

Assuming the Ukraine-Russia crisis does indeed descend into conflict, commentators continue to say that the cryptocurrency market’s ability to recover will depend more on macroeconomic factors than on some kind of political deal or ceasefire.

“The main factor weighing down the markets is the prospect of higher interest rates in the US and across the Western world. Most wars involving Western countries have a much smaller economic impact than large rate hikes.” Glen Goodman said.

In other words, don’t expect the crypto market to pick up until certain macroeconomic threats – inflation, rising interest rates – have subsided. That said, Mike McGlone says that, at least for bitcoin, the medium to long-term future looks bright.

“I think bitcoin’s downside is limited below $30,000 and is now probably building a foundation for the next big key threshold around $100,000. Bitcoin is a very small fraction of global portfolios and most managers are realizing. of risks and is staying on zero allocations to the revolutionary technology / asset, particularly compared to most equity positions, which may have gotten a little bloated, especially with bonds providing little yield, “he said.

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