NEW DELHI: Russia ’s invasion of Ukraine could prompt more people to turn away from the US dollar, in a potential boost for cryptocurrencies.
Bitcoin, the world’s largest cryptocurrency has decoupled from risk-on assets in the past two days, aiding narratives the coin could be viewed as a store of value, uncorrelated to the broader market.
Cryptocurrency Live While still elevated at 0.55, Bitcoin ’s correlation with the S&P 500 has backed down from a high of 0.7 earlier this year, data compiled by Bloomberg show.A correlation of 1 means two assets move perfectly in tandem, while a zero correlation displays their fluctuations are wholly independent.
On Tuesday, Bitcoin extended a two-day rally, leading broad-based gains in cryptocurrencies as digital assets reasserted themselves as haven assets — and emerged as a potential vehicle for getting around sanctions — amid the intensifying war between Russia and Ukraine.
The largest digital coin by market value rose as much as 8% to $44,964 in New York trading hours.Its rally over the past two sessions have added 20% to the market value at one point and its total market capitalisation has crossed above $840 billion once again.
Peculiar bitcoin on-chain movement
“Bitcoin withdrawals from exchanges to private wallets increased on February 28.The withdrawals were higher on global exchanges like Binance which supports several fiat currencies including the Russian ruble, and the withdrawals were lower on regional exchanges which support fewer fiat currencies.Additionally, trading volumes for Bitcoin against the Russian ruble rose to a 9-month high of 1.5 billion RUB worth of Bitcoin traded.Again, these are early signs but it looks like Russians could be buying Bitcoin for three reasons – as a way to hedge against the devaluation of their national currency, to protect against an imminent banking crisis, and a means to send money internationally,” Darshan Bathija, CEO and co-founder of Vauld, told Times of India.
There has been some peculiar Bitcoin on-chain movement
The recent donation of $8 million in cryptocurrency received by Ukraine, clearly showcases the all-new use case of cryptocurrency.
“Since it is not governed by any third party, the donations clearly demonstrate crypto’s utility as money and how it can seamlessly become a medium of exchange when compared to any other existing fiat currency in the world.
Since fiat currencies have geopolitical issues, sanctions can affect their flow and value.Cryptocurrencies, on the other hand, are a lot more open, transparent, and agnostic to any particular side and we will see this manifest in multiple new use-cases in the future too,” said Gaurav Dahake, CEO & Founder Bitbns.
However, if Russia starts conducting majority of its transactions through crypto, the western countries could try and curb crypto moments through centralized entities, though the decentralised movement of cryptocurrencies cannot be stopped in any form.
Trading volume in bitcoin using ruble surged to highest level in May
Trading volumes in Bitcoin using the ruble have surged to the highest level since May, suggesting Russians are potentially moving their money into crypto as the ruble plunges to a record low.
Meanwhile, trading volumes overall for Bitcoin and Ether, the second-largest cryptocurrency by market value, have dropped even as their prices rose over the last month, according to a report from CryptoCompare.
Average daily aggregate trading volume on crypto products stood around $353 million, down more than 24% from January.
Because Bitcoin’s fundamental and intrinsic value can be elusive, “technicals, a map of market psychology, may be critical,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.He noted that some technicians point to a break above February’s highs potentially being key and possibly signaling a move above $50,000.
Why is bitcoin rising when there is war between Russia and Ukraine?
Analysts watching the market say the stunning breakthrough can be ascribed to the idea that cryptocurrencies could act as a type of refuge as the war in Ukraine intensifies.Its appeal lies with the fact that cryptocurrencies are detached from governmental control and therefore not beholden to any of their actions.
The invasion and sanctions against Russia could push more regular people toward crypto, said billionaire Mike Novogratz, a long-time crypto bull.
He, however, was clear that doesn’t imply Bitcoin is being used to avoid sanctions.
“We’ve never had a group of nations in essence confiscate real estate from Russian tycoons,” the founder of Galaxy Digital Holdings said in an interview with Bloomberg.“This sends a message: I want to have money that lives outside of traditional power.That’s why Bitcoin was created, because people don’t trust governments.” In contrast, blockchain ledgers are transparent.
Some analysts have attributed sanctions against Russian banks, companies and wealthy elites — and the subsequent economic fallout — as driving a rush into digital assets.
Bitcoin “has gold-like properties in that if you hold it you directly control the assets as opposed to governments and banks being in between,” said Stéphane Ouellette, chief executive of FRNT Financial Inc.
“In a period where banking is destabilized in a region, which is obviously happening in Europe right now, it would make sense to see some flows into BTC as people diversify away from the banking system,” he said, adding that speculators can get in front of such trends, which can drive prices higher.
The rally is about “the utility of these assets to serve as a potential workaround for Russia sanctions and also a point of proof that virtual currencies are viable alternatives to fiat currencies like the Russian ruble,” said Nicholas Colas, co-founder of DataTrek Research.
Bitcoin can be a useful asset during geopolitical turmoil
Its outperformance amid the volatility has some bulls pointing to a break from the narrative that crypto is just another risk asset.Adam Farthing, chief risk officer for Japan at crypto trading firm B2C2, said bitcoin could “de-link from risk” and start trading more like a hedge to geopolitical instability and inflation.
“Bitcoin saw a significant upward move today as it appears to have slightly regained its safe haven status while the Russia-Ukraine conflict continues to intensify,” said Walid Koudmani, an analyst at XTB Market.
Russia-linked cybercriminals raked in $400 million in cryptocurrency from ransomware attacks in 2021
Cybercriminals with links to Russia have set the pace for ransomware attacks.Over $400 million worth of cryptocurrency, or about 74% of ransomware revenue in 2021, went to entities “highly likely to be affiliated with Russia in some way,” said Chainalysis in its 2022 Crypto Crime Report preview.
Following ransomware attacks, most of the extorted funds — roughly 13% — went to services primarily catering to Russian users.
“That brings us to another point: A huge amount of cryptocurrency-based money laundering, not just of ransomware funds but of funds associated with other forms of cybercrime as well, goes through services with substantial operations in Russia,” said Chainalysis.
As part of the research, Chainalysis looked at cryptocurrency businesses either headquartered or with a significant presence in Moscow’s financial district.
It found that from Q4/2020, there was a large jump to over $300 million in illicit and risky activity related to cryptocurrency.
“In any given quarter, the illicit and risky addresses account for between 29% and 48% of all funds received by Moscow City cryptocurrency businesses,” Chainalysis said.Between 2019 and 2021, the businesses have received about $700 million worth of cryptocurrency from illicit addresses.
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