The war between Russia and Ukraine created tension globally and affected multiple sectors. For instance, fuel and oil prices increased because Russia is the second biggest oil producer after Saudi Arabia. The western world passed economic sanctions against Russia, hoping to weaken it and curb its invasion of Ukraine, and the sanctions isolated the Russian economy from the global economy.
The cryptocurrency market is one of the casualties of the Russia-Ukraine crisis because cryptocurrency is widely adopted in these two countries. Earlier in the year, cryptocurrency lending sites & Defi services experienced an all-time low. At one time, the cryptocurrency market cap fell by over 9 percent in 24 hours. It was suspected that Russia would use cryptocurrency to mitigate the effects of the sanctions. This article will discuss how the ongoing Russia Ukraine crisis has affected the cryptocurrency market.
Expert Opinion on Fluctuating Crypto Prices
Financial and cryptocurrency experts believe Russia's invasion of Ukraine has dealt a big blow to high-risk assets, such as cryptocurrency. On the other hand, assets traditionally considered safe havens, such as gold and the U.S. dollar, started trading higher due to increased demand. That said, crypto investors started offloading risky assets
September has historically been a bad month for Bitcoin (BTC). The average fall in the price of Bitcoin for all the months of September of the last five years is 8.5%. However, all is not lost. The Ethereum 2.0 network upgrade is at least a plus for the market. The merge (upgrade) began on Sept. 6 and was completed around Sept. 15. Experts believe that the price of Ethereum could hit $2,000 by the end of 2022 if the merge is appropriately executed.
Crypto Tracks the Stock Market
Bitcoin, the godfather of all crypto, has historically been considered a "safe" asset because it provided a hedge against inflation. Although crypto (particularly Bitcoin and Ethereum) were not correlated to traditional financial markets before the war, they are now in sync with the stock market; their prices keep fluctuating like equities and stocks. So, is it the time to invest in stocks or crypto?
Approximately $300Mn worth of Bitcoins were liquidated the first day Russia invaded Ukraine, creating a crash in the digital assets market like cryptocurrencies. Bitcoin dropped by 4%, while the price of Ethereum dropped by 3.6%. Other Altcoins followed suit, and most experienced their worst performance or highest decline on that day. Cryptocurrencies like Avalanche, Terra, and Cardano were the most affected.
The price of Meme coins, such as Dogecoin, fell by 17.90%, while Shiba Inu's price fell by 16.92%. The overall cryptocurrency market fell by 4.18 % immediately after Russia invaded Ukraine. The good part is that most investors were prepared for this event or expected the crash.
War in Ukraine could accelerate the growth of the crypto sector
In February, the Ukrainian government announced that it was accepting donations in the form of crypto to support its army.; preferred cryptocurrencies were Bitcoin, Ethereum, and Tether. Although the announcement was considered a public stunt, over $100Mn had been raised by March of 2022.
The Russia-Ukraine War Could Accelerate Regulation
The ongoing war between Ukraine and Russia has accelerated the regulatory takeover that the cryptocurrency sector has been battling for a long time. Every country that has adopted crypto will/has been forced to put crypto regulatory mechanisms for regulating virtual currencies, such as crypto, hoping the whole process will acquire a certain standard of global cohesion. The goal should be to minimize the illegal use of crypto while promoting its efficiency, particularly financial transaction processing speed. Striking a balance will not be a walk in the park.
How the Russia–Ukraine War Brought Crypto into the Spotlight
Cryptocurrency is Traceable
Is crypto an effective way of dodging sanctions? It may not be so, especially when moving large sums into the hands of Russian oligarchs and big organizations based in Russia. All the money in the "wrong hands" cannot currently be absorbed by mainstream cryptocurrencies.
Using cryptocurrencies to transfer wealth may not be a good idea because the money used to purchase crypto can be traced and sanctioned once the money used to purchase crypto lands in a traditional bank account. Increased law enforcement has also made cryptocurrency
How does cryptocurrency work?
Blockchain is a distributed public ledger updated and maintained by currency holders–this is the foundation of cryptocurrencies.
Through a process known as mining, which employs computer power to solve challenging mathematical problems, units of Bitcoin are created. However, not only Bitcoin can be mined, but other cryptocurrencies too.
The Blockchain is the foundation of cryptocurrencies. In simple terms, Blockchain refers to a distributed public ledger that the holders of a particular currency maintain. The following are the features that have fueled the growth and adoption of crypto:
1. Irreversible Transactions
You cannot reverse a transaction when using a cryptocurrency, eliminating the aspect of fraud. The transaction is initiated after the currency holder presses the confirm button. No one, including the currency holder, can initiate a reversal henceforth. The only way of making a reversal is by contacting the recipient, which can be impossible without their identity.
2. Cryptocurrency is Portable
You can access your crypto portfolio at the touch of a button regardless of your global location. Also, you can transact with anyone from any country that accepts cryptocurrency transactions.
3. Cryptocurrencies are Safe, Secure, and Encrypted
Private keys are used to secure virtual wallets when using cryptocurrency. The effect is that the wallet holder is the only one who can access the deposited funds. Third parties cannot access your funds and details of your transactions without your permission.
The Russia–Ukraine war has significantly affected the cryptocurrency market, although it is recovering slowly. However, the crisis has taught us that Cryptocurrencies will be there for the long term and will continue to be a viable option for traditional currencies and legal tenders.