Cryptocurrencies, once considered as a hedge against political pressure, now move in tandem with global markets, as Bitcoin and the other top-performing cryptos suffered from a massive sell-off due to fear of war conflict between Russia and Ukraine.
Bitcoin, for example, fell 8% and tested the critical support around $35,000, with a current price tag of $35,334.63 per BTC. Ethereum made an even steeper decline, losing 12% daily to trade around $2,374.14.
Almost all of the top-100 cryptos are seeing double-digit price decreases, ranging anywhere between ten and twenty percent. Some cryptos are even stepping outside the 20% fall mark, pushing down the entire crypto market capitalization close to $1,5 trillion.
Indeed, all of the gains the crypto projects made on February 23 are now gone, with Bitcoin even falling below the $35,000 psychological barrier before bouncing back to current levels.
In contrast, traditional safe-haven assets like gold received welcomed interest, pushing prices up above $1,950 per troy ounce.
War conflicts and political pressure
The main cause of the crypto plummet is the start of a war conflict between Russia and Ukraine. However, Russia’s latest war offense in Crimea in 2014 saw crypto asset prices ballooning, which means the $50 billion per year sanctions against Russia had little to no effect.
However, on February 22 the Biden administration imposed new sanctions against Russia, aiming to thwart its access to foreign capital. The escape route for Russian to have access to fresh capital is to go the crypto route, which would bypass the control points of governmental control – banking transactions.
Michael Parker, a former federal prosecutor who now heads the anti-money laundering and sanctions practice at Washington, D.C., law firm Ferrari & Associates noted that “Russia has had a lot of time to think about this specific consequence,” adding that “It would be naive to think that they haven’t gamed out exactly this scenario.”
Economic sanctions against countries are not a new tool in the hands of United States Presidents, since the U.S. dollar is considered to be among the top international currencies. The position of the U.S. dollar as a global financial leader has pushed the U.S. Treasury Department to make a warning that cryptocurrencies posed an increasingly serious threat to the U.S. sanctions program and that U.S. authorities needed to educate themselves about the technology.
In turn, countries like China, North Korea, and Russia are all working on some form of digital native currency, with China leading the pack with its DC/EP stablecoin, which could unlock the doors to U.S. capital. Russia is also working on its own CBDC project, but its efforts might be better concentrated on deploying ransomware, despite Russia’s central bank representative stating that a digital ruble would make the country less dependent on the United States and have the ability to better resist sanctions.
It turns out that in 2021 alone, over 74% of the total ransomware was done by Russian entities, which stole more than $400 million worth of cryptocurrencies.
Meanwhile, Ethereum’s co-founder Vitalik Buterin, who was born in Russia, criticized the war act calling it a “crime against the Ukrainian and Russian people.” According to Buterin, the “special military operation” (as Vladimir Putin calls it) will lead to devastating consequences for both Ukrainian and Russian citizens.
Is the crypto market going to overcome the war pressure?
The military conflict pushed Asian stocks like Hong Kong’s Hang Seng index down 3.5% and the Nikkei reaching a 15-month low. However, CEO of trading giant FTX Sam Bankman-Fried noted that there are arguments both ways for what should be happening to Bitcoin currently.
“Well, let’s say there are 2 types of people in the world: fundamental investors and algorithm followers. Fundamental investors look at the situation and are uncertain which direction BTC/USD should move. Algorithm followers consult the data. Historically, what’s the trend?” Bankman-Fried tweeted, adding that Bitcoin might see an uptrend, despite its close correlation with equity markets, since many Eastern European currencies would suffer from a war conflict in Ukraine, and people would seek refuge for their funds.