The Russia-Ukraine crisis might be a perfect reflection of what the world can do with cryptocurrency and where is it heading…
It is a fact that wars have a devastating effect on the stock market. Whether it was World War II, the Indo-China war or the current Russia-Ukraine, the share market globally bears the brunt of geopolitical disturbances. However, this time, there is another companion bearing the consequences of the Russia-Ukraine war, cryptocurrency.
Cryptocurrency has gradually turned into a separate, new financial market. And therefore, it is inevitable for the industry to escape the effects of military interventions between nations.
Within 24 hours of the Russian invasion of Ukraine and a huge sell-off in the stock market, the cryptocurrency market registered a 10% downfall. With an exception of stablecoins, almost every cryptocurrency recorded a double-digit drop in the market value.
Russia-Ukraine War Effects on Cryptocurrency Space
On Thursday, Russian President Vladimir Putin ordered a military intervention against Ukraine. Within hours, different parts of the nation were under attack, including the capital city of Kyiv.
While the world was still processing the devastating state of affairs, $200 billion was already wiped off the crypto market as soon as Putin announced the so-called “special military operation”.
Surprisingly enough, Bitcoin and Terra managed to minimize the liquidation and emerged safely.
But why? Let’s try to find out-
A reality check for Cryptocurrency- Why is it plummeting due to war?
Enthusiasts and investors reason that cryptocurrency is different from the stock market. However, time has often proved that the two are quite inseparable. The fact has been reinforced by the Russia-Ukraine war.
Crypto enthusiasts also termed Defi assets like Bitcoin as “digital gold”, stating how independent cryptocurrency is of traditional financial markets.
Well, this might be a reality check for cryptocurrency because “gold” is doing fine despite the war.
The market activity as soon as Putin ordered the invasion only goes to prove that investors still do not think of cryptocurrency as a stable and safe investment. Just like the stock market. The two have quite a similar story.
As soon as the war breaks out, investors pull out their money from unreliable asset classes such as equity. They go on to invest in relatively safer assets such as bonds. Hence, they are called safe-haven.
The same reason stands true for cryptocurrency. These are extraordinary times and investors don’t trust crypto enough with their hard-earned money.
Looming danger of greater regulation
The West has responded to Russia’s hegemony with massive sanctions. These sanctions target everything from Russian banks to energy and oil. And while it comes across as an impending blow to the Russian economy, cryptocurrency might come to the country’s rescue.
While multiple nations have made it impossible to trade with Russian entities and their currency, there is already a plan in place. According to experts, Russian entities can easily continue international trade and transactions through digital currencies.
According to Michael Parker, head of anti-money laundering and sanctions practice at Washington said, “Russia has had a lot of time to think about this specific consequence. It would be naive to think that they haven’t gamed out exactly this scenario.”
As a consequence, the West, especially the U.S., might rush to impose stricter regulations on crypto use.