Crypto prices are falling, damaging digital currencies’ image as a safe haven and an alternative to gold.
When the shooting starts, there is no safe haven.
Cryptocurrency prices got a hard lesson in reality Thursday when Russian launched its attack on Ukraine. The conflict sent gold and oil prices soaring, while stocks and crypto headed south.
‘Ethereum is Neutral, but I Am Not’
Bitcoin was down 5.1% to $35,882 at last check, according to CoinGecko, while ethereum was down 7.7% to 2,441 and dogecoin was off 10.2% to $0.117699.
The invasion had an emotional impact on Vitaly Dmitriyevich “Vitalik” Buterin, one of the co-founders of ethereum, who tweeted “Reminder: Ethereum is neutral, but I am not.”
Vitalik, a Russian-Canadian, said that he was “very upset by Putin’s decision to abandon the possibility of a peaceful solution to the dispute with Ukraine and go to war instead.”
“This is a crime against the Ukrainian and Russian people,” he wrote. “I want to wish everyone security, although I know that there will be no security.”
Analysts had varying reactions to the conflict’s potential impact on cryptocurrency prices.
Cliff Hodge, chief investment officer for Cornerstone Wealth, was blunt in his assessment.
“The conversation on bitcoin and crypto as a store of value, inflation hedge, or digital gold is dead, as it’s proven to be nothing more than another momentum product in the liquidity lottery,” said he said.
Zak Killermann, Fintech & crypto specialist, Finder, said that cryptocurrencies, like nearly all global markets, took a hit on the news of Russia’s invasion of Ukraine.
“But what’s next is important — can cryptocurrencies continue to act as a hedge against inflation rates that don’t appear to be curtailed anytime soon?” he asked. “Sanctions launched against Russia by US and NATO could lead to a surge in crypto, especially if Russia decides to use cryptocurrencies to circumnavigate traditional financial channels.”
‘A New Developing Technology’
President Joe Biden on Thursday unveiled new sanctions on Russia, including export controls that will “impose severe cost on the Russian economy, both immediately and over time,” according to CNN.
News outlets, including the New York Times, have suggested that Russia could use cryptocurrency to blunt the force of U.S. sanctions.
Meanwhile, Ukrainians have been raising thousands of dollars for volunteer groups by crowdfunding bitcoin.
Earlier this year, Russia’s Ministry of Finance had called for a ban on crypto, but softened its position is looking to regulate digital currencies.
Cryptocurrencies would be treated as investment tools, not legal tender, preventing their use as a means of payment for goods and services.
With Russian President Vladimir Putin urging regulators to compromise on crypto policy, Killermann said “we might be seeing a shift in Russian-crypto relations.”
“But just as past performance is never indicative of future performance, comparing how BTC and cryptocurrencies in general have weathered storm after storm gives us no guarantee on what’s next,” he added. “Investors across the board, both fiat and decentralized, will want to pay extra attention to global events as they unfold.”
Edward Moya, senior market analyst for the Americas with Oanda, said that Wall Street “has a lot of confidence in the global economic outlook now that a Ukraine-Russia war will likely continue to fuel inflationary pressures that will make this a challenging environment for growth and all risk assets, especially cryptos.”
“Investors are running to gold right now and will wait to jump back into crypto until they feel confident that the bottom is in place with the stock market selloff,” he said. “With the Nasdaq testing bear market territory and the Dow correcting 10%, risk appetite remains vulnerable and that suggests cryptos will likely struggle to muster up a sustained rebound anytime soon.”
Junior Theomou, founder of MINERS DeFi (MINERS), said that “we must keep in mind, cryptocurrency is still a new developing technology that for many is associated with uncertainty, it will require more time to be accepted by society at large.”
‘Gold Wins’
“I am not surprised bitcoin is falling right now, because people are panicking,” he said. “While I can not predict the extent of this conflict, things will eventually settle down and people will begin thinking more rationally.”
This will lead to the destabilization of bitcoin Theomou said, “while simultaneously instilling people with a new sense of trust in crypto because it was able to bounce back.”
Gold prices surged on news of the invasion, prompting some harsh commentary on social media.
“Gold vs crypto has been settled via a knockout in the last couple of months,” one commenter tweeted.
Gold vs. crypto during war times,” another person said. “Here’s your answer: Gold wins.”
“Gold Vs crypto debate has been silenced for now!!” another person tweeted.
“Meanwhile look at what gold prices are doing,” another person said. “It looks like gold is still the gold standard (ha!) of inflation and market risk hedging and cryptocurrency is just a turd.”
However, Theomou said that while gold has been used for decades to store value, “it is not considered a secure asset to physically store, especially in times of conflict.”
When the government declares a state of emergency, he added, they can demand funding or even confiscate precious commodities such as gold from their citizens.
“Bitcoin is stored virtually on the blockchain, where it is safer,”Theomou said. “Ultimately Bitcoin will take over the role of gold as countries’ primary means to store value.”
