Bitcoin Or Gold? With The War In Ukraine "the True Refuge Is Discovered
Cryptocurrencies have been around the global financial markets long enough to have a track record of how they perform in times of crisis. While many analysts and experts proclaim their role as a safe haven, events show time and time again that during episodes of chaos in financial markets, they tend to fluctuate in line with risk values. The beginning of the war between Russia and Ukraine has not been an exception.
The attack that Vladimir Putin has ordered in several regions of his neighboring country has caused large sales in the stock markets that have taken on a catastrophe in cryptocurrencies, with some tokens falling to levels of a year ago or to historical lows, as in the case of the dogecoin . Bitcoin has lost a notable 10%, but has respected supports .
"In recent years we've heard the argument that bitcoin is the new 'safe haven,'" says AJ Bell chief investment officer Russ Mould. "However, it has not shown any signs of being a store of value during the current crisis ," he added.
In contrast, gold has done what it usually does when a war breaks out, rising more than 2% to late-2020 levels, as investors piled into the traditional haven. A move that highlights the widening gap between bitcoin and the yellow metal this year . While gold prices have risen 8%, the world's largest cryptocurrency has lost almost a third of its value, leading experts to assert that "we are discovering which of the two is the true refuge value", in words from Neil Wilson, analyst at Markets.com.
This rivalry between gold and bitcoin is not something new. At the beginning of the coronavirus crisis, in March 2020, the role of electronic currencies as a 'safe haven' was already questioned. In the past, bitcoin had been functioning as a haven similar to the precious metal , to the point of being heralded as 'digital gold'. This was the case during the worst moments of the trade war between China and the US in the Trump era or when the Covid-19 situation was not yet a global pandemic. But when markets panicked nearly two years ago, digital tokens were sold off like other risk assets.
Instead, during the following months of restrictions and closures of economies due to the virus, Satoshi Nakamoto's currency once again puffed up its chest as a store of value and became an excellent tool to diversify the portfolios of investors , who were looking to hedge against inflation. For more than a year, institutional traders, banks, and funds, especially from Wall Street, have taken an exposure to bitcoin or ethereum, resulting in all these newcomers treating crypto "as a stock like a very beta." high" , Ramiro Martínez-Pardo, CEO of HeyTrade, explained to Bolsamanía.
Faced with the imminent rate hike by the US Federal Reserve (Fed), "which these investors believe will have a negative impact on the growth technology stocks listed on the Nasdaq, they have sold the 'cryptos' as one more, without bothering to pay attention to its fundamentals ," argues Teeka Tiwari, an expert at the Palm Beach Research Group.
A recent Bank of America report reflected that the world's most traded digital currency, and the rest of this market, have been behaving like a risky asset for at least half a year . Since the summer they have exhibited a high correlation with the Wall Street indices that reached maximums this past January. And in this context, the war in Ukraine only confirms what many have been warning in recent weeks: that the quintessential digital currency "has been very vulnerable both to expectations of rate hikes from the Fed and to the geopolitical tensions,” says Ipek Ozkardeskaya, an analyst at Swissquote.
WHAT TO EXPECT FROM BITCOIN?
Thus, the expert believes that if the situation in Ukraine worsens, “we could see the price of the crypto currency fall towards $30,000 and even below , depending on how serious the situation is”, a vision in which they agree most of the analysts consulted. “The other cryptocurrencies will also feel the claw of the Ukrainian war, because when bitcoin sneezes, the entire crypto industry catches a cold,” he adds. Ozkardeskaya underlines the fact that higher electricity prices make cryptocurrency mining more expensive , another "fundamental reason that prevents bitcoin from being a safe asset in the current environment."
"Cryptocurrencies are a refuge in a normal world," a source from this industry told Bolsamanía. In a scenario of war in Europe that may have power outages as one of its consequences, and this will affect bitcoin mining operations and other tokens, digital assets are hit harder and traditional safe haven values, such as gold or the dollar, are a safer bet.
Looking ahead, cryptocurrency prices, like financial markets in general, are likely to be volatile in the coming weeks, largely influenced by developments related to the Russia-Ukraine conflict. However, “historically, most geopolitical crises have had minimal long-term global market repercussions, and the threat is often more significant than the event itself,” says Simon Peters, senior crypto asset analyst at eToro.
“What's important about all of this is that political instability will once again underscore bitcoin's primary goal of being a transparent, open-source, peer-to-peer network, not controlled by a single administrator or central bank,” he continues. “This means that, even if banks close and local currencies lose value in times of instability, citizens will continue to have access to capital through crypto assets , ”he concludes.
