Crypto market drops as tension rises between Russia and Ukraine

2022-02-24, 09:56

[TL;DR]

Tensions between Russia and Ukraine are high. The United States is keeping a close eye on the situation across the Atlantic, with President Joe Biden indicating that the US will intervene if required. But While his administration considers sending soldiers to Eastern Europe, American investors must evaluate the implications of the escalating Russia-Ukraine crisis on the financial market. However, the body of this article highlights the major factors surrounding the financial market, what eventually happens if there's war, and the status of the market after the crash.

How did the Russia-Ukraine invasion affect Cryptocurrency?

United States President "Joe Biden" urged Americans to leave Ukraine immediately
as tensions rise between Russia and Ukraine while also warning that an attack could begin at any time. But for now, the U.S. has canceled sending troops into Ukraine despite Russia's military activities. However, Russia had repeatedly disputed any plans to invade Ukraine despite loading more than 100,000 troops near the border, even when Russian ships recently arrived in the Black Water and began massive military drills with Belarus. On this accord, Ukraine accuses them of obstructing its access to the sea.

How far back did the cryptocurrency market decline?

Bitcoin fell to its lowest level in six months in the last week of January over worries of a Russian invasion of Ukraine. On January 24, the market saw a drop in riskier assets worldwide, extending the sell-offs. Bitcoin (BTC) fell as low as $32,982.11 as of January 24, while Ether had a 4% decline, which was as low as $2,176.4, as well as a 7% dip in SOL. Stocks also declined, but traditional commodities such as gold and the U.S. dollar continued to rise.
On Friday, Feb 11, the market also declined as traders reacted to the geopolitical tension. Bitcoin went as low as 5%, 4% for ETH, and a 7% dip in SOL price.

Major factors impacting the cryptocurrency crash

The crypto crash was partly driven by expectations that Russia's central bank would ban cryptocurrency use and mining. While it's understandable that Russian President Vladimir Putin would oppose anything that takes away his power, the suggestion has sparked outrage among some Russian business leaders.

Regardless of the outcome, this type of speculation has had a negative impact on cryptocurrency prices. However, the crash isn't solely due to Russian news. Interest rates are expected to rise soon, and many investors may be compelled to sell high-risk assets as a result. Crypto, which is seen as less stable, stands as a tempting target under such circumstances.

However, Analysts believe that an immediate armed crisis between Russia and Ukraine has a significant impact. However, while the effects of Bitcoin could be substantial, the majority of them are only short-term in nature. Analysts also believe that the threat of violent conflicts is possible, but BTC holders should not fear it.

Furthermore, the impact of the Ukraine-Russia crisis and its possible escalation on the crypto asset market is not as severe as most investors fear. However, according to many analysts, it is primarily due to other macroeconomic concerns, which subsequently weigh down the market.

What happens when war eventually breaks out?

Assuming that the Ukraine-Russia issue escalates into a conflict, analysts believe that the crypto market's potential to rebound will be determined more by macroeconomic considerations than by a political settlement or truce. The possibility of increased interest rates in the United States and throughout the Western world is the critical factor weighing down markets. Most wars involving Western countries have a less economic impact than significant rate hikes.

While most analysts believe the Ukraine issue has had little impact on cryptocurrency, many also believe a direct armed war between Russia and Ukraine will significantly impact.

If armed conflict breaks out, crypto markets are expected to suffer a significant drop, intensified by the conflict's impact on oil and food prices. Armed war would very certainly result in food shortages due to supply chain interruptions, and sanctions imposed on Russia would almost certainly result in the closure of a critical oil pipeline to Europe, potentially raising gas and oil prices.

Because Bitcoin has become considerably more connected with traditional markets in the last two years, if these commodity prices are impacted, cryptocurrency values are likely to be influenced in the short term.

Generally, Stock markets have historically reacted negatively to an armed conflict involving Western countries, and many expect cryptos to follow the stock market down. However, the good news is that market downturns are usually short-lived. Although this is optimistic, some observers believe that the Ukraine-Russia issue will not grow into a war.

Armed war is a possibility, but it is not something BTC holders need to be concerned about. Gold performs exceptionally well during the war; therefore, Bitcoin should decouple from stocks and trade higher if the crisis escalates into an armed conflict. Many observers in the crypto space have long referred to Bitcoin as "digital gold." Nonetheless, other experts argue that it has more in common with stocks and other risk assets, implying that investors shouldn't be confident that it will be unaffected if Russia and Ukraine clash.

Conclusion

A Russian invasion would certainly aggravate inflation by pushing energy costs even higher, and putting more pressure on the Fed (federal reserve) to increase interest rates.“From the Fed’s perspective, the inflationary effects of a Russian invasion and higher energy prices would likely outrank the shock's negative implications for global growth.”

Author: Gate.io Observer:M. Olatunji
Disclaimer:
* This article represents only the views of the observers and does not constitute any investment suggestions.
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