For a brief moment this month, it seemed that the prices of crypto-currencies were no longer affected by the volatility that gripped Wall Street, but began to dominate again due to risk aversion associated with the conflict between Russia and Ukraine.
As for Bitcoin (BTC-USD), there has been debate about its use cases, such as (legitimate) Ukrainian donations or (dubious at best) flows from Russians seeking to avoid sanctions.
With the tokens hovering between $37,000 and $45,000 over the past month, many investors have called the moment a test of the asset’s long-term value. On Friday, Bitcoin tracked the fall in stocks, dropping more than 2%, and in the last week alone, it has fallen 6%.
According to Yui Hasegawa, a cryptocurrency market analyst at Tokyo-based cryptocurrency exchange Bitbank, a fight is being played out between bulls and bears.
“A highly volatile asset like bitcoin has been and will be affected by stock market volatility, but a tug of war between sentiment-driven risk and inflationary hedging is likely to keep bitcoin moving in its current medium-term range,” Hasegawa told Yahoo Finance. .
Created after the financial crisis, Bitcoin was initially promoted as an alternative payment network, separate from the monetary order of governments. Some of its more ardent supporters have called it “digital gold”.
However, since the start of the pandemic, the performance of the asset has been largely determined by dizzying volatility and risk sensitivity – unlike a real safe haven.
Bitcoin is still too early on the “acceptance curve” to truly be considered “digital gold,” said Martha Reyes, head of research at cryptocurrency exchange Bequant.
The token has sold 32% since its bull run a year ago, but for those who bought it five years ago, its delivered profit is 40 times the original investment. Some still believe that the future of Bitcoin as an alternative form of transaction is bright.
“This is huge geopolitical pressure, the fact that Bitcoin is holding up I think is long-term bullish for the asset,” Alex Chizhik, head of listing at crypto exchange Okcoin, told Yahoo Finance.
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Role in the global crisis
Through social networks, Ukraine received support in the form of donations in cryptocurrency. As of Friday, the government and supporting organizations have received $63 million in the last 15 days, according to intelligence tracked by blockchain analytics firm Elliptic.
Complementing traditional forms of international support, cryptocurrency has come in handy as the country finances its defense, Alex Bornyakov, Deputy Prime Minister of Ukraine for Digital Transformation, told Yahoo Finance this week.
When Russia stormed Ukrainian cities, cryptocurrencies proved to be a much easier form of money for non-Ukrainian volunteers who used digital coins when entering and leaving the country. According to Ukrainian-born Ilya Polosukhin, co-founder of the Near Protocol crypto project, he helped non-military citizens flee the war.
According to him, the main idea behind the cryptocurrency is to ensure that “governance failures” do not affect money.
“Obviously we haven’t reached that point yet, but the mission… is to create a more transparent and accountable governance system,” Polosukhin added.
Meanwhile, the question arises as to whether Russian individuals and entities under sanctions can use cryptocurrencies to avoid the punitive sanctions imposed by Western countries.
“It’s about Russian billionaires taking their money out of Russia,” Alexander “Sasha” Ivanov, a Dubai-based cryptocurrency investor and founder, told Yahoo Finance.
Claiming to have dual citizenship in Russia and Ukraine, Ivanov started his Waves project in Moscow. He has said in the past that his team worked for a state-owned Russian company, but those ties have been severed. He added that blockchain technology is more than just money.
Reuters recently reported that Russian cryptocurrency holders were trying to liquidate billions in the United Arab Emirates (UAE), which had not imposed sanctions on Russia. However, US officials and some crypto experts are questioning the idea.
According to Jason Bartlett, a cybersecurity researcher at the Center for a New American Security (CNAS), the Russian elite have traditionally used places with lower sanctions enforcement, such as Dubai, as a safe haven for their financial assets.
“Crypto is no different. It will likely take strong international political and economic pressure on the Gulf states to push regional authorities to crack down on Russian oligarchs who buy property and hide their wealth within their jurisdiction,” Bartlett added.
David Hollerith handles cryptocurrencies for Yahoo Finance. Follow him @dshallers.
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