Introduction
The war between Russia and Ukraine has created tension throughout the world affecting multiple sectors. Since Russia is the biggest oil producer after Saudi, the fuel price increase has become inevitable in most parts of the world. To curb Russia’s invasion of Ukraine, the western countries are passing economic sanctions against Russia to weaken it. The sanctions have started to isolate the Russian economy from the world economy.
The cryptocurrency sector, already volatile, has faced a major impact on its prices due to the Russia-Ukraine crisis. Russia and Ukraine are two countries that have high number of cryptocurrency users. So a problem around these two has had a major impact on the whole crypto sector throughout the world. In this article, I have discussed five notable impacts on the cryptocurrency sector due to the ongoing Russia Ukraine crisis.
Cryptocurrency initial price drop
The Russia Ukraine crisis has been going on since 2014 February. But Russia launched a full-scale military invasion on February 24 2022 risking safety throughout the world. The crypto sector faced a major crash as the Russia Ukraine invasion escalated. As soon as the news was out, many investors started offloading risky digital assets from their portfolios. The Russia Ukraine conflict has also affected the traditional financial markets. As soon as the invasion occurred, Nasdaq went down by 168 points.
On the particular day of the attack around 300 million dollars, worth of Bitcoins were liquidated. This created a steep drop in prices of digital assets like cryptocurrencies. Initially, Bitcoin saw a 4% drop on CoinBase. Other Altcoins also performed badly during the invasion . Ethereum price fell by 3.6%. Other cryptocurrencies like Avalanche, Terra, Cardono Also faced the heat of the situation.
Meme coins like Dogecoin faced a low of 17.90%, and Shiba Inu face a dip of 16.92%. Based on a report the overall crypto market dropped by 4.18 % as soon as the information was invasion news was out. According to some of the experts, this drop was expected. The founder of BuyUCoin Shivam Thakral states that the present dip in the crypto market is nothing more than a knee-jerk reaction due to the tension of sudden invasion of Russia on Ukraine.
Cryptocurrency in Ukraine
When it comes to cryptocurrencies, Ukraine is highly welcoming. With a report from blockchain data platform chain analysis released in 2021, Ukraine ranked in number 4th position in crypto adoption. Most of the experts believed that Ukraine may be the crypto capital of the world.
Russia’s invasion of Ukraine has changed a lot of things. But this didn’t deter Ukraine’s love towards cryptocurrencies. The government made an official tweet for collecting donations in Cryptocurrencies to fund their defense operations against the Russian invasion. This is a major step in the crypto sector as this provides information for crypto analysts to see cryptocurrency behavior during the war.
Stand with the people of UkraineNow accepting cryptocurrency donations. Ethereum. Bitcoin and Tether (USDTtrc20)BTC — 357a3So9CbsNfBBgFYACGvxxS6tMaDoa1PETH — 0x165CD37b4C644C2921454429E7F9358d18A45e14USDT (trc20) — TEFccmfQ38cZS1DTZVhsxKVDckA8Y6VfCy
— Mykhailo Fedorov (@FedorovMykhailo) February 26, 2022
As soon as the Ukraine vice prime minister Mykhailo Fedorov tweeted the wallet address for donations, he received around $35 million in cryptocurrency. As per the reports, donations were received in the form of Bitcoins and Ethereum. Some people also passed down the donations in the form of non Fungible tokens. I would also like to add that Ukraine passed a parliament law to adapt all the digital assets. This legalized crypto exchanges and cryptocurrencies in Ukraine.
Cryptocurrency in Russia
Russia on the other hand also has a population vastly invested in cryptocurrency. Being a major sector, Russia focused on making the cryptocurrency more regulated. With the twist of events and its invasion in Ukraine changed Major of its plans.
Most of the people invested in cryptocurrencies are now scared of getting their assets frozen. Russians are planning to cash out their cryptocurrency. Cryptocurrency firms in the United Arab Emirates are receiving multiple requests to liquidate billions of dollars worth of cryptocurrencies by Russians. Most Russians are planning to invest to property in the United Arab Emirates some exchange it for hard cash to keep it in a safe place.
But why do Russians prefer the UAE? Because the UAE has refused to take sides between western allies and Moscow. This shows that Russians can keep their money safe. Some experts also believe that Russia can overcome sanctions using cryptocurrencies. The cryptocurrencies provide a greater level of anonymity that allows Russians to avoid sanctions by transferring the money to other countries.
On the other hand, this may not be a holistic solution as they cannot move large amounts of money throughout the sector. The lucrative option is to initiate crypto mining in Russia. Russia is already high in energy, and crypto mining is already occurring in the Siberian province. This can generate assets and convert them into cash to pay for imports.
Caroline Malcolm believes it can be prevented using technology. The wallet address can be marked as sanctioned entities. This is very much possible in the blockchain technology. Also, the firm can initiate alerts immediately to stop transactions or follow them as soon as they occur.
As per the sanctions, some exchanges like CoinBase have taken steps To make sure not to evade sanctions. As a result, few days back US democrats have introduced a bill. The goal is to enable the President to imply sanctions on foreign cryptocurrency firms dealing with Russian entities and preventing them from further transacting with US customers.
It is still a bill and not yet promoted to be a law, it has increased the pressure on a cryptocurrency exchange. This will put all the foreign crypto trading platforms at risk of money laundering. As per the bill, the taxpayers have to report offshore transactions made through cryptocurrencies exceeding $10000.
As per this bill, the US treasury secretary can block digital assets operating in the US from further transacting with any Russian-based crypto users. Crypto exchanges have refused to initiate without a legal requirement. I would recommend this video from CNBC television where FTX CEO Sam Bankman shares his view on the bill.
Bitcoin price increase amid Russia Ukraine crisis
As the Russia-Ukraine crisis started, the cryptocurrency sector faced a drop in prices. March 2nd week the Bitcoin and other cryptocurrency prices stabilized. Bitcoin’s price jumped over 15%. Within 24 hours the Bitcoin price again Rose to 12.51% and started trading at a great price. As soon as the Russia-Ukraine invasion started Bitcoin value dropped notably but it has stabilized a lot. Around March, the global crypto market jumped back to $2 trillion. This was a whopping 10% growth in 24 hours.
But how did the cryptocurrency market regain faster than the financial market? According to the experts, market usually work based on anticipation of an ongoing event. The war was anticipated a lot and the markets reacted accordingly. This created high volatility in the market. As soon as the invasion started, the people felt insecure and started withdrawing funds from highly volatile digital assets.
Crypto enthusiasts and financial experts suggest that Bitcoin price rising in case of emergencies means that cryptocurrencies can be an alternative to the traditional financial system. It is pretty clear that cryptocurrencies have stood the geopolitical issue and recovered to grow as usual.
Bitcoin prices have increased, the total global cryptocurrency market has reached the $1.9 trillion mark. The market has grown by 3% in the last 24 hours. Most of the cryptocurrencies have gained greater price. Some experts say that the price will reach $50,000 in the coming days.
Bitcoin has decoupled itself from equity markets. The prices rose, the S & P index nosedived amidst concerns of rising oil prices. It is likely to regain its haven status as the Ukraine Russia crisis is expected to play out longer than expected from – Sharath Chandra, VP Research and strategy, Earth ID.
Status of cryptocurrency in March 2022
March 2022 proved to be a fantastic turnaround for cryptocurrencies. Due to the Russia -Ukraine crisis,at the beginning of February all the cryptocurrencies and other financial markets faced a slump. However the Cryptocurrency market have revived very soon. It proves that it is no more just a fad and maybe a serious option and can serve as an alternative for the present currencies.
Bitcoin prices have increased drastically and started trading at $44000 at the beginning of March. It is proved to the investors that it is a safe haven and an edge against war.The Russian rouble has been facing the heat of the sanctions and started trading lower, hitting an all-time low of 118.35 per dollar. Russians have pumped their money into cryptocurrency to save their earnings.
Bitcoin is not just a speculative asset also a seizure-resistant policy independent longer-term store of value- Noelle Acheson – Genesis head of marketing insights.
Conclusion on cryptocurrencies
Bitcoins and cryptocurrencies have fared very well during this emergency crisis when compared to the equity market which is still suffering from sanctions and making a slow recovery. Cryptocurrencies are here to stay and seen as a viable option other than the traditional currency. Does this make cryptocurrencies and Bitcoins a perfect investment tool? Well no, not exactly.
According to some experts, Bitcoins and other cryptocurrencies should not be given the safe haven status, the harsh truth is cryptocurrency are a supply cap, credit-free digital bearer asset that proves to be a viable alternative to traditional finance in the present situation. With time, we will get to know more about these digital assets and their behaviour to different situations.
Well I do agree with it, but the fact that this sector jumped back sooner than the equity market, and being used as a means to receive funds in Ukraine and acknowledged by the parliament really says a lot about its potential. They may not replace currency immediately but can definitely be a viable option and a perfect ally for the conventional financial systems. But as they say , time answers these questions way better than any analysis.