Op-Ed: How Recent Geopolitical Tensions Have Affected The Cryptocurrency Market

Recent geopolitical tensions in Russia and Ukraine have dramatically affected the prices of cryptocurrencies. When Russian President Vladimir Putin announced a “military operation” in Ukraine, the crypto market fell by 10%. However, the very next day the market rallied and new highs were recorded. Bitcoin, which was down 8%, rose more than 15% over the next seven days. Other cryptocurrencies like Ethereum and Altcoins have also seen significant price increases.

This was completely contrary to the world’s expectations: while the major markets were crashing, the crypto market remained strong in the face of geopolitical tensions. This demonstrated the potential of cryptocurrencies as an alternative financial system that offers new ways to transact and hold assets even amid political chaos. However, political tensions have definitely increased the volatility of cryptocurrencies as their values ​​fluctuate almost daily.

In response to the invasion, the European Union, Japan, the United States and Australia imposed sanctions on Russia and its financial institutions, which increased pressure on Russia’s currency, the rouble. As Ukraine receives millions of dollars worth of cryptocurrency in donations, the Russian ruble is trying to save itself with crypto-assets. The day after the Russian invasion of Ukraine, the ruble’s trading volume increased by 260%. Similarly, in Ukraine, where the cryptocurrency is now legal tender, Ukrainian hryvnia transactions have seen all-time highs.

Although crypto exchanges were under heavy pressure to block any transactions with Russia, they resisted and took no such action. They argue that such sanctions are not only feasible but also cannot be effective for an institution as large as Russia. Furthermore, the traceability of blockchain technology will not allow Russia to replace billions of dollars of funds in crypto assets. Thus, a haven of peace can do not be possible at all.

Prior to the Russian invasion, cryptocurrencies traded like other risky assets such as tech stocks. However, after the invasion, investors started looking at cryptocurrency as a reserve for their assets which are devaluing due to these strains. There are several reasons related to conflicts that affect cryptocurrency prices and the crypto market. They include:

  1. Crypto donations

On February 26, the Ukrainian government called on the crypto community to donate to the cause. It was the first time a government accepted cryptocurrency donations. So far he has received $100 million cryptocurrency donation dollars. The donations were collected through the fund managed by Ukrainian crypto exchange Kuna. Polkadot founder Gavin Wood alone donated $5.8 million to the cause.

  1. Traditional banks

Given the conflict, it is becoming increasingly difficult to rely on traditional banks to hold their money. Inflation in the United States is rising at the fastest pace as never seen before. In addition, stock market volatility increased by 80%. As cryptocurrencies come to the rescue of the people of Ukraine and Russia, crypto advocates are also speculating that digital currencies will become more mainstream.

This is not just the case of Russia and Ukraine; other countries that are directly or indirectly involved in the conflict, such as the United States, Canada and the European Union, are also experiencing inflation. Their national currencies will downand people are losing faith in the traditional banking system. For them, cryptocurrencies serve as an alternative investment vehicle.

  1. Growing demand

Recent geopolitical events have increased the general demand for cryptocurrency due to its decentralized nature. They do not need a centralized institution to initiate the transfer of funds. And so, reliance on central banks becomes minimal. As a result, this decentralized nature of cryptocurrency allowed Russian and Ukrainian individuals to transfer their money anywhere without being affected by the sanctions imposed on them. On top of that, the value of the Russian ruble keeps falling, which is why Russian nationals are seeking refuge by converting the currency into cryptocurrency to save it from further devaluation.

A crypto ban is not a solution

Current developments in the political and financial sector have shown that banks and centralized state institutions can no longer control all financial instruments in the economy, especially decentralized cryptocurrencies. Even though major exchanges like Coinbase and Binance are facing immense pressure from the government to ban transactions from Russia, they have made it clear that they intend to do their best not to follow these orders. They cited several reasons why such a ban would not produce any concrete results and would even target the integrity of the cryptocurrency.

First, a ban would be in direct contradiction to the values ​​of decentralization, freedom, and autonomy that underlie the fundamentals of cryptocurrency. Moreover, the freezing of crypto assets and transactions of Russian users will not only affect them, but also other users on the block chain network.

On top of that, it is impossible to universally regulate the crypto industry as there are thousands of crypto exchanges around the world, many of which are local and less compliant with regulations. This means that even if the big exchanges sanction Russian users, they will simply turn to the smaller ones, and the problem will remain untouched.

However, the future trajectory of cryptocurrencies remains uncertain as oil prices soar due to sanctions against Russia. Bitcoin and other cryptocurrencies generally require a huge amount of energy to mining and verify computer transactions.

Rising energy costs could impact Bitcoin prices sooner or later, depending on how this political situation develops. And as such, crypto users are hoping for the situation to stabilize, which could bring some sort of stability in the value of the cryptocurrency, which is highly volatile.

Even though the crypto market has remained firm in the face of geopolitical tensions, future cryptocurrency prices will depend on future political and economic developments.

Guest post by Ian Kane of Unbanked

Ian Kane is the co-founder of Unbanked, a blockchain-based global financial technology platform. Kane has worked in technology and digital media for over 10 years with a particular focus on business development, sales and strategy. His diverse professional background allows him to bring unique insight and experience to every challenge he takes on.

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Op-Ed: How Recent Geopolitical Tensions Have Affected The Cryptocurrency Market

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