Key Takeaways:
- On Thursday, bitcoin hit a one-month low, as ether and other cryptocurrencies also plummeted.
- According to Coinmarketcap data, the whole cryptocurrency market has lost more than $150 billion in the last 24 hours.
- The dip in cryptocurrency prices coincides with a drop in equity markets following Russia’s military invasion on Ukraine.
Bitcoin proponents have long argued that the cryptocurrency’s value serves as a haven against inflation and other threats seen in traditional markets. On the other hand, cryptocurrencies fell just hours after Russian President Vladimir Putin ordered his soldiers to invade Ukraine on Thursday. Bitcoin dropped as much as 7.9% to $34,324 (€30,570), its lowest level since January 24, and was down 4.5% at writing. Smaller coins that usually move in lockstep with Bitcoin plummeted as well, with Ether losing as much as 10.8%.
After financial markets were rocked by Vladimir Putin’s plan to invade Ukraine, the Russian rouble fell 5.4% to a record low on Thursday.
The Moscow Exchange announced that trading on all markets had been halted on Thursday morning.
President of the United States, Joe Biden, recently spoke with President of Ukraine, Zelenskiy Volodymyr.
According to a White House statement:
“President Zelenskiy reached out to me tonight, and we just finished speaking. I condemned this unprovoked and unjustified attack by Russian military forces. I briefed him on the steps we are taking to rally international condemnation, including tonight at the United Nations Security Council.”
“He asked me to call on the leaders of the world to speak out clearly against President Putin’s flagrant aggression and to stand with the people of Ukraine. Tomorrow, I will be meeting with the Leaders of the G7, and the United States and our Allies and partners will be imposing severe sanctions on Russia. We will continue to provide support and assistance to Ukraine and the Ukrainian people.”
Impact on Crypto:
Within hours of Russia entering Ukraine, Bitcoin—the digital currency most often referred to as a gold substitute—fell 8%, with prices plummeting to $34,413 a coin. Likewise, the native currency of Ethereum, the game-building blockchain, has dropped 7% to $2,404 per unit.
Solana, an Ethereum competitor popular among NFT inventors, also fell 10% to $83. Even Shiba Inu, a meme coin that grew by a mind-boggling 49,000,000% last year, has dropped 10%.
High inflation in the United States has fueled speculation that the Federal Reserve may move faster to normalise short-term interest rates, nearly zero since the pandemic began. In February, St. Louis Fed President Jim Bullard stated unequivocally that he would favour a 0.5% interest rate rise at the Fed’s next meeting in mid-March.
Since 2000, the Federal Reserve has not raised interest rates by more than 0.25% in a single meeting.
The overall crypto market lost $160 billion in value in the last 24 hours, according to market tracker CoinMarketCap, plummeting 10% since the Ukraine invasion began.
The dangers posed by Ukraine, according to Evercore ISI, are likely to sway the Fed away from a double rise. However, analysts warn that the shock of higher energy costs resulting from the disruption in Russian oil and gas supplies could exacerbate the US’s continuing inflation problem.
“At a minimum, the additional boost to headline inflation from increased energy costs will make central banks more attentive to any signals of second-round impacts in the coming months,” Evercore ISI said Thursday.
Sanctions Imposed by Russia:
According to US Vice President Joe Biden, the US and its partners would slap “serious sanctions” on Russia following the strikes. In addition, Josep Borrell, the EU’s foreign affairs leader, has announced the bloc’s strongest financial measures yet.
As investors sought perceived safe-haven assets, global stocks and US government rates plummeted while the currency, gold, and oil prices soared. European stocks fell by 2.6% on their own.
Of course, cryptocurrency isn’t the only asset that has suffered from the news of Russia’s invasion or even in the run-up to it. The Stoxx 600 index in Europe fell 2% after opening Thursday, while economists forecast the S& P 500 index to fall 7% in the coming weeks. The fact that cryptocurrency is dropping in lockstep with other assets, on the other hand, runs counter to Bitcoin’s reputation as a haven.
“So far, we’ve seen BTC and crypto markets follow stocks,” Joseph Edwards, head of financial strategy at crypto business Solrise Group, said.
“In crises, everything tends to correlate, and we’re anticipating something similar here, so things are going to get worse in the following days.”
According to Chris Dick, a quantitative trader at crypto market maker B2C2, “the link between crypto and stocks has been high over the previous several months on both inflation-related macro news and the Russia-Ukraine geopolitical crisis. This correlation demonstrates that Bitcoin is currently behaving like a risk asset, not the haven it was hailed as a few years ago.”
However, analysts believe the growing situation in Ukraine adds a new layer of uncertainty to a global economy that is still dealing with the threat of a pandemic. Energy costs are rising due to disruptions in Russian oil and gas supplies, and Ukraine’s centrality to the European economy is already prompting concerns about the impact on actual income and growth throughout the continent.
Some crypto industry leaders see Bitcoin’s ongoing integration with traditional markets as a fundamental shift in the coin’s worth as an asset—albeit one they can’t explain just yet.
