Bitcoin again viewed as safe haven amid geopolitical tension

SILVER SPRING, Maryland. – Bitcoin prices have risen as investors again appear to view the volatile cryptocurrency as a safe haven for their money and Russians and Ukrainians seek alternatives to their country's financial institutions.

After initially falling to around $34,000 following Russia's advance in Ukraine last week, bitcoin was up 10% on Monday and is now up more than 25% in the past week, to $43,900 on Wednesday afternoon. Other cryptocurrencies have also soared.

The Russians are exchanging their rapidly devalued rubles for bitcoins to test and mitigate the impact of economic sanctions imposed by international communities for your country's attack on Ukraine. The Ukrainian government has limited the ability of its citizens to conduct electronic fund transactions, so Ukrainians are also turning to bitcoin and other cryptocurrencies. They are also buying stablecoins whose values ​​are pegged to the US dollar.

Ad

Before the Russian invasion, bitcoin was trading similarly to other riskier assets such as tech stocks. Investors had hoped that the Federal Reserve would soon start raising interest rates in response to high inflation. They pulled money from more speculative investments like bitcoin and bought bank stocks in other industries that tend to do well when rates rise.

That changed after the invasion when Western countries responded with a series of steps that limit the ability of the Russian government and the country's oligarchs to access financial systems. Those moves have knock-on effects for citizens of Russia, who have been lining up at banks and ATMs to withdraw money.

Blockchain data and analytics firm Coin Metrics says the volume of transactions in bitcoin for rubles and Ukrainian hryvnias has soared in recent days, but such transactions still represent only a small fraction of the total volume. Translation: Investors across the board are looking at bitcoin and other cryptocurrencies as a good place to store assets again.

Ad

Kyle Waters, a research analyst at Coin Metrics, said crypto trading data confirms that recent geopolitical events have “more generally” increased demand for cryptocurrencies, which can be transferred anywhere and without the need for a third party.

"This could be for anyone, and could certainly include Russian and Ukrainian citizens trying to escape a devaluing local currency," Waters said.

Some analysts and media reports have speculated that Russian oligarchs could use cryptocurrencies to avoid sanctions. On Wednesday, the Justice Department said it is creating a task force that will, among other things, try to thwart any effort to use cryptocurrency to circumvent sanctions.

Some analysts suggest that this bitcoin surge may already be peaking as energy prices surge as the Russia-Ukraine conflict rages on. Oil soared to $111 a barrel on Wednesday, its highest level in more than a decade. Bitcoin mining, where computers are used to verify Bitcoin transactions, consumes an enormous amount of energy.

Ad

“Bitcoin has had a good run, but the exhaustion in this rally is likely to set in as rising energy costs are likely to affect some offshore mining,” Oanda's Edward Moya said in a summary report. of markets.

In addition to the increased regional and broader crypto market activity, millions of dollars worth of crypto has been donated to Ukraine since the invasion.

Elliptic, a company that tracks cryptocurrency transactions, says $33.8 million worth of digital currency has been donated to the Ukrainian government and non-governmental organizations there since the start of Russia's invasion, almost a third as of Tuesday.