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Highlights
- The Ukraine crisis has possibly caused cryptocurrencies to fall in value, similar to listed stocks
- Bitcoin is a digital currency, and it may be that during and after the war, it demonstrates some utility
- Initially dampened by the pandemic, cryptos pulled off a stunning comeback in 2020
The world was already passing through a rough phase owing to the socio-economic fallouts of the Covid pandemic. And now that the Russian forces have started a full-blown military attack on Ukraine, many analysts worry that riskier assets including cryptocurrencies will suffer collateral damage.
As of writing, all major cryptocurrencies including Bitcoin, Ether, and BNB have extended losses over the past 24 hours. The aggregate market cap of all crypto assets tracked by CoinMarketCap has plunged below US$1.6 trillion.
On a year-to-date (YTD) basis, the world’s most closely tracked S&P 500 Index is down nearly 11 per cent. Riskier assets are definitely under pressure.
What could be the likely near-to-medium term impact of the Russia-Ukraine war on cryptocurrencies?
Can war make Bitcoin lose value?
Bitcoin is by far the biggest and most popular asset in the entire cryptocurrency universe that also has assets like non-fungible tokens (NFTs) of Beeple and CryptoPunks.
Also read: What are CryptoPunk NFTs & which ones sold for the highest prices?
The price fluctuation of Bitcoin might impact other crypto assets. In 2022 so far, Bitcoin has remained subdued and so have most other altcoins.
In order to understand the possible effects of the ongoing war on BTC’s price, let’s turn the clock back a bit. The Covid pandemic was the biggest disruption in decades to the global economy. The pandemic caused factories to temporarily shut down, millions across the world lost jobs, and eventually inflation, has spiraled out of control.
On March 1, 2020, Bitcoin was trading at almost US$8,600. By mid-March, the time when economies were contemplating lockdowns in the wake of the Covid spread, BTC’s price dropped below US$5,000. This was a sharp plunge, even if the volatility of crypto assets in regular times is factored in.
The price stayed below US$8,000 until April end, but in early May, BTC was hovering near US$10,000. It was a notable comeback at a time when many economies had shut operations and confined citizens to their houses.
The bull run in Bitcoin extended in the subsequent months, and by the end of 2020, Bitcoin reached almost US$30,000. This shines the spotlight on how fast Bitcoin may recover even from deep losses. According to CoinMarketCap, the total market cap of cryptos soared from under US$200 billion to over US$700 billion between January 1 and December 31, 2020.
Also read: What is Bombcrypto & its BCOIN gaming token’s price prediction?
Data provided by CoinMarketCap.com
Can war add value to blockchain-based digital currencies?
One way of looking at cryptos during the ongoing war is by treating them as tradable assets. Another way to look at these is by considering them as digital currencies or tokens.
Bitcoin has yet to become legal tender in any other country than El Salvador but claims that Bitcoin can enable quicker and cheaper remittances can justify its utility, especially when the global economy might struggle due to the socio-economic costs of the war.
It is quite likely that the war would deal a blow to the global supply chain and prices of crude oil and even essentials might rise. If Bitcoin can demonstrate its ability in lowering the costs of cross-border money transfers, it may be that BTC’s price may appreciate.
Also read: 5 cryptos under one cent to watch in 2022
Even altcoins, which usually are native tokens of a particular blockchain-based project, may establish their utility during tough times. Instead of transacting in fiat currencies, people may warm up to using such tokens as a form of payment. Maybe, SHIB and DOGE find use in tipping on platforms like Reddit.
But if the global economy is dealt a severe blow by the Russia-Ukraine war, there is also a chance that Bitcoin and altcoins may come under increased pressure if countries like Russia and the US choose to ban these volatile assets to prevent their oft-debated negative impact on the wider financial sector.
Also read: Bitcoin price prediction 2025: Can Web 3.0 catapult BTC to $300,000?
Data provided by CoinMarketCap.com
Bottom line
Bitcoin and all other major cryptos are reeling right now, possibly due to Russia’s military strike on Ukraine. But Bitcoin emerged quicker than expected from the pandemic shock, and its price data establishes this.
It may be a possibility that Bitcoin and other cryptos may quickly rebound after the war, more so if digital currencies can prove their utility during a time of crisis. But on the other hand, if economies decide to double down and escalate their efforts to ban cryptos to prevent their negative impact on the financial sector, these assets may lose more value.
