Talk on markets from Hong Kong to London has been revolving around the growing tensions between the Russian Federation and Ukraine in recent days. However, the effects of this geopolitical issue are not limited to the clear risks to the growth prospects of the traditional stock market, as well as fears of a shock to global energy supply. Bitcoin, Ethereum, and other cryptocurrencies have been on an upward trend in recent days.
Leaders of various Western countries have been working around the clock to avert the possibility of a Russian land invasion of eastern Ukraine, while Russian president, Vladimir Putin, continues to deny allegations that the continuing military force buildup on the border is the first step toward an intended shooting war.
Ukrainian president Volodymyr Zelenskiy has continued trying to keep his country’s citizens calm, calling for a nation-wide ‘day of unity’ tomorrow, February sixteenth–the date on which many media outlets, such as NBC and the New York Times, have been reporting a Russian invasion could start.
Amidst all these headlines, as well as drops on major indices like the S&P500 (USA 500) and Nasdaq (US-TECH 100) over the course of recent trading days, the crypto sector seems to have awoken from its month-long slumber. As of the time of this writing, Bitcoin (BTCUSD) had risen in value by 4.7% since Sunday. This quick rise comes on the tail of a months-long losing streak; Bitcoin’s price has fallen by nearly 7.8% since New Year’s and is down a whopping 34% since its all-time high of $67,650 on November 8th. Ethereum (ETHUSD) has even outpaced Bitcoin’s rise this week, rising over 7% since Sunday. Furthermore, the Crypto 10 Index (Crypto10) had marked a two-day rise of 6.5% at the time of writing.
Many traders may be wondering why cryptocurrencies are beginning to climb now. Although for much of the time since their advent, digital coins have been viewed by investors as a ‘safe-haven’ asset that could help pad portfolios, many analysts now believe that crypto price movements are more akin to those of traditional equities, especially tech and growth stocks. With tech stocks having struggled at many points in recent months, crypto’s downward trend of the past couple of months may not seem surprising when viewed through that lens.
Some are saying that the recent rise in crypto values should not be seen as a wholesale return to its old image as a safe investment in times of turmoil, but rather as a temporary bump on a longer-term downward slope. The prospect of a ‘crypto winter’, or a prolonged period of low crypto values, has even been raised. The last time this sector underwent such a crash was in 2018 when Bitcoin lost four-fifths of its value.
Can This Rise Continue?
However, the crypto market has undergone significant changes in recent times, especially over the past year. The relatively nascent spheres of non-fungible tokens (NFTs), decentralised finance, and the metaverse attracted a great deal of buzz in 2021. Accordingly, new digital coins like Axie Infinity (AXSUSD) and Uniswap (UNIUSD) surfed the wave of increased investment and have risen significantly in recent weeks. Additionally, cryptocurrencies have gained legitimacy as a payment method over the past year, with Tesla (TSLA) announcing last July that it would most likely accept digital coins in the future, and Uber (UBER) following suit last week.
Although cryptocurrencies’ jump in the past couple of days might encourage some traders, many market watchers are warning against over-optimism. The prospect of a half-percentage point increase in the U.S. interest rate in response to record inflation still looms heavily on the horizon, which could weigh on crypto’s potential growth trajectory as Treasury bond yields rise. If the tensions in the post-Soviet space ease before a full-scale ground invasion is launched by the Russian army, inflation and the Federal Reserve’s next move will have a greater effect on crypto in the short term.
While Bitcoin and Ethereum seem to be steadily rising at the time of this writing, much is still uncertain regarding many of the factors that could either draw or repel investors from this volatile sector in the coming days.