Looming Russian Invasion of Ukraine and the Trembling Crypto MarketsFebruary 22, 2022
The last several weeks of geopolitical news mainly boiled down to the issue of whether or not the Russian Federation would invade its neighboring Ukraine. That building of tension has reached a critical point in the previous week or so, with incidents of shelling and violence becoming more and more frequent. At the same time, across the borders in Russia and Belorussia, the buildup of forces continues. Presently, the Russian army has more troops and equipment massed than any time previously in over 50 years, going back to the Hungarian revolution of the 1950s.
That has the world on edge and the worry is that a full-scale war could break out at any moment, as both the US and the UK have been telling the global public for a better part of a month. Because of that, the global markets are swaying and wobbling, fueled by the instability of not just geopolitical circumstances, but also the overall economic state of Europe. The crypto markets have been doing the same, with the overall value of tokens and market capitalization going down steadily over the same period. Now, the talk is of a new crypto winter and in many ways, the same period could already be here. That could hurt the development of the crypto space and definitely will hurt many investors. But, as the Russian and Ukrainian forces stare at each other across the borders, there also could be some opportunities for those involved in the crypto domain.
The recent development in the Russia-Ukraine crisis has been the decision of the Russian Federation and its President Vladimir Putin to recognize the breakaway republics of Donetsk and Luhansk. That came as the buildup of troops, as well as cross-border hostilities, reached new heights with daily shelling and accusations of direct firefights between units of the Ukrainian army and those from Russia. However, this is all a piece of a prolonged and hard history between not just Ukraine and Russia, but the entire region even before the Soviet Union. Events of WW1 and WW2 were famously disastrous for all residents of this region and brought about huge levels of suffering. At the same time, modern history has also been filled with a string of horrible events.
When the Maidan Revolution broke out in Kyiv in 2014, the eastern part of the country, generally the Donbas region, saw an escalation of civil hostilities into an all-out war. That war led to the creation of the Republic of Donetsk and Luhansk. Both received their official recognition from the Russian Federation and now, the tensions are likely to boil over into some new form of reality on the ground. Previously, crypto markets would revel in this level of insecurity and volatility, as many would see them out as a form of uncorrelated asset to any traditional investment space. Today, they are anything but uncorrelated and thus will follow the movement of the stock market and other standard financial spaces. That trajectory appears to be squarely heading down.
All of the turmoil brought about a new level of market turmoil and that includes basically all of the markets. Because of that, the price of bitcoin, like practically all other digital currencies, took a tumble. It has not been drastic at the moment of the writing of this article, but the trajectory remains pointed quartz down. However, the same principle applies to all riskier assets, like stocks and many more financial options that usually get front and center in times of surplus of money and stability.
That also coincides with the moment when the ventures like esports competitions, cutting-edge tech enterprises, and similar things get their investment rounds finalized even if they might not offer the clearest development path. Presently, all of these alternatives take a backseat to options that offer a level of security and stability regardless of the path that the global economy can take.
Gold and Oil
Instead of going for assets that are laden with risk, investors in these situations tend to gravitate towards assets with more stability. These are basically commodities and gold, both of which saw an increase in value over the Russia-Ukraine crisis. Gold is basically the only established hedge investment that anyone can make in the modern environment and the current 2022 is no different. Furthermore, the ongoing pandemic made the same alternative more popular once again, as many found the hard way in March 2020 that a big drop in the market value of stock and crypto can have more than drastic results.
Now with the chance of a new major war on the territory of Europe and even the first such conflict in over 70 years, the investor cohort is seeking quickly to establish at least some kind of hedge. Unfortunately for the bitcoin token price, the notion that crypto can act as any form of hedge is long gone and for now, is not coming back. Instead, crypto seems to be perfectly aligned with things like Nasdaq composite and tech stock in general.
Looming Energy Crisis
Even before the conflict in Ukraine, it was clear that the world and especially Europe are entering an energy crisis that will demand some big and drastic changes in the long term. Last summer, fueled by a clear and ongoing global climate change, brought a drop in renewable energy production. Wind farms in particular failed to reach the desired output, which caused a cascading effect. The most prominent element of that was the rise in the price of natural gas and instability in further energy production.
Russia again plays a huge part in all of that and the same continues to this very day even with the crisis in Ukraine. Crypto, at the same time, is now clearly in the state of wintery conditions. Prices will stay down or go even further in the red in the coming days. Of course, the resolution of the problems in Ukraine is essential not just for crypto, but for the world’s economy. But, even with it on the table very soon, crypto markets will likely remain in the red.