The cryptocurrency space as well as other markets like the commodity market have all experienced a heightened level of volatility since Russia announced a special military operation into Ukraine, marking the beginning of the conflict between the two nations.
The war is the major factor as to why we are seeing multi-year highs and high volatility in the cryptocurrency market as well as the commodity market. As previously mentioned, on the 24th of February 2022, Russian President, Vladimir Putin, announced a special military operation in Ukraine. A major focus in the war has been on oil and cryptocurrency.
Oil, because Russia is the second-largest exporter of crude and refined oil, accounts for 5 million bpd of crude and 2.8 million bpd of refined products and also 7% of the world’s global supply. Due to the economic significance of Russia in the oil market, the war has caused a rally in the price of oil as there are fears that Western nations would sanction Russia, in solidarity with Ukraine.
Even without sanctions, many private organizations have taken it upon themselves to stop dealing with Russia, in a self-sanctioning spree. Many organizations are refusing to touch Russian oil also in solidarity with Ukraine and are currently looking for alternative supplies.
We also saw a focus on cryptocurrencies on both sides of the war. For Ukraine, cryptocurrencies have been a strong instrument to the Ukrainian government as they have been able to receive donations through them from people all over the world who are supporting the nation in its fight against Russia. So far, the Ukrainian government has partnered with FTX and Everstake to launch a donation website and according to the site, the Ukrainian government has been able to raise $50.4 million of its targeted $200 million as of the time of this writing.
For Russia, we saw an increased focus on cryptocurrencies as a tool to bypass sanctions issued by the United States and other Western nations. Many speculated that because Russia had somewhat legalized the use of cryptocurrencies against the advice of the Russian financial watchdog, it intended on using the industry as a means to bypass sanctions imposed on the nation as a result of the war.
However, these speculations were put to bed. According to data from blockchain-analysis firms, it revealed that Russian denominated crypto purchasing and trading on major exchanges have declined by as much as 50%, which means that many have not turned to the use of cryptocurrencies in the nation. In fact, Russians are avoiding the use of the industry.
Asides from this fact, Jake Chervinsky, head of policy at the Blockchain Association in the U.S., went as far as to call these concerns about crypto “totally unfounded,” as he explains in a Twitter thread that Russia, “can’t and won’t use crypto to evade sanctions.”
How the cryptocurrency market has reacted to the war
Since the start of the war on the 24th of February 2022, the cryptocurrency space, which is already known for its volatility, saw a sharp decline on the day. Flagship cryptocurrency asset Bitcoin has fallen below the $35,000 support zone at the time, as the market reacted negatively to the news.
Also on the day, as you would expect, the broader cryptocurrency market declined significantly. The cryptocurrency market capitalization declined by 15.43% on the day, falling below the $1.5 trillion mark, to stand at $1.45 trillion.
Comparing the cryptocurrency space to the time of the ‘Wild West’ would seem to be somewhat accurate as the next day saw Bitcoin quickly recover above the $40,000 trading zone as the war intensified.
Bitcoin gained over $5,000 or 16.80% from the previous day’s low of $34,459 to trade as high as $40,250, in what many called a relief rally. In fact, Bitcoin traded as high as $45,077.58 on the 3rd day of March 2022, as the cryptocurrency bulls took over the market due to buy orders that were quickly filled up when Bitcoin fell below $35,000. According to William Clemente, an on-chain analytics expert, we saw net accumulation by whale entities towards the end of February which means a lot of big money investors bought the dip.
So far in March, we have seen the cryptocurrency space range with Bitcoin ranging between $38,000 and $42,000. However, investors have been cautious as the United States federal reserve is expected to begin increasing interest rates this week.
Experts advice on how to invest in crypto during these times
Ajibola Lawal, a DeFi specialist at Kaicho Digital Assets, explains that the narrative of crypto being an inflation hedge is just that. He stated, “The first step is to acknowledge that the narrative of Crypto-as-an-inflation-hedge narrative, is simply that. Narrative. At the base of it, Crypto is probably a high beta asset. This implies that what the traditional markets feel, the Crypto markets will feel even more.
“Thus, considering that the general markets are facing headwinds globally, Crypto will (in the first instance) be radically affected by that. Of course, it isn’t all bad news. Within that milieu, there are still opportunities for investors to enjoy inflation-beating returns within DeFi with very low risk and zero exposure to volatility.
“And it is in conditions like these that DeFi focused shops like ours thrive. Of course, this is reflected in the flow of new enquirers and corresponding sign-ups.”
Adetayo Adesola, a Crypto Marketing Specialist, also shared his thoughts on investing in crypto in these times. He stated, “Investors should first realize that the time for 1000x returns are over (not saying it won’t happen, but it is significantly lessened).”
He further stated, “Crypto investors need to go back to what I would term ‘common sense investing’. Within cryptocurrency, there are somewhat safer investment vehicles that investors can consider i.e. staking assets in regulated stablecoins. I would also consider selling a large chunk of altcoins and maybe focus on bitcoin holdings for the foreseeable future.”