February 28, 2022
Cryptocurrencies: Weekly Update
Cryptocurrencies, specifically Bitcoin (BTC), are often touted by enthusiasts as a hedge against inflation and macroeconomic stress. However, Russia’s invasion of Ukraine has made it glaringly obvious that Bitcoin behaves far more like a Risk asset than like Gold.
Everybody knows that in times of significant political or economic stress, gold is the default flight to safety. When fiat currencies lose value (against the US Dollar), commodity supply chains are corrupted, and people are forced to flee their homes, gold becomes more valuable.
What everybody has been watching and waiting to see in the run-up to this week was whether Bitcoin would correlate with Gold in the face of war in Europe, or if it would behave inversely to the precious metal.
However, the relationship between Gold and Bitcoin doesn’t need to be as tumultuous as everyone makes it. Cryptocurrencies fit into the equation as a risk asset right now, but we don’t know that that will be the cryptocurrency’s future.
Bitcoin is demonstrating several of its theorized use-cases right now for the whole world to see, many of which Gold simply cannot be considered for.
Historically, Gold has been a great asset to have on hand to help get out of sticky situations. Nowadays, pretty much nobody has physical gold in their possession… well other than your friend who buried a bag of gold coins in his backyard 10 years ago and would likely need to buy a metal detector just to find it.
Only a few weeks ago we saw millions of dollars worth of Bitcoin being donated to the truckers protesting in Canada as a revolt against Prime Minister Trudeau’s decision to freeze protesters’ bank accounts.
Now, the war in Ukraine is exemplifying several more real-world use cases for cryptocurrencies amidst geopolitical unrest.
This week we’ve seen support for Ukraine echoed around the world, so it should be no surprise that donations would start flooding in. What’s different about this war is that it is taking place in a modern country, which means that the affected Ukrainian citizens have access to smartphones… and cryptocurrency exchanges/wallets.
That means that incredible acts of philanthropy like this were able to happen:
Just as soon as the news came that Ukrainian gas stations were empty, shelves were barren, and ATMs were drained of cash, headlines like this started circulating:
The Ukrainian cryptocurrency exchange Kuna saw a 200% increase in trading volume the day of Russia’s invasion, which should be no surprise as the Ukrainian government’s declaration of a state of emergency included the freezing of all online and electronic bank transfers in the country.
Although all men aged 18-60 are required to stay and fight, the UN has still estimated that up to 5 million Ukrainians may be displaced. With the Ukrainian hryvnia becoming essentially worthless overnight, fleeing Ukrainians that had a cryptocurrency nest egg may very well be the most financially secure at the moment.
Digital currencies aren’t just being used by Ukrainian citizens, but are also being directly deployed by the Ukrainian government in an attempt to raise aid at a national level.
As of Sunday night, at least $10 million in BTC, ETH, and USDT has been donated directly to Ukraine, with countless other Ukrainian aid organizations receiving donations in cryptocurrency as well.
Given all of the positive ways that Ukrainians have already utilized cryptocurrencies during this crisis, there are also the potential negative implications of how Russia will use the same technology.
We’ve all seen the strange approach from Putin and the Russian government the past few weeks in regards to cryptocurrency legalization. First, the Russian Central Bank proposed outlawing cryptocurrencies, then Vladimir Putin made the executive decision that they would instead adopt and regulate blockchain and crypto.
If you know anything about cryptocurrency mining, you’ll know that it can be very expensive but also extremely profitable. Russia has both an array of cheap energy sources and technological capabilities that make crypto mining an obvious choice for the next major industry to develop in the country.
Well, at least that's what seemed to be the most obvious explanation for Putin’s sudden interest in cryptocurrencies. Unfortunately, we soon found out that may not actually be the main motivation behind the decision to adopt crypto…
For obvious reasons, NATO and the United States are choosing to avoid directly engaging in the war in Ukraine. This has left Western allies with economic sanctions as the best option to combat Russia’s advances.
One of the first potential sanctions to be discussed by the media was for Russia to be removed from The Society for Worldwide Interbank Financial Telecommunication (SWIFT). This decision has already been enacted on a select handful of Russian banks and aims to disable Russia’s ability to operate in the global financial community.
Current sanctions on Russia also include freezing Russian and Putin’s personal bank accounts overseas, cutting off Western funding of Russian enterprise, and restrictions on Russian business operations and exports to name a few.
Without the ability to transact, Russia’s countless billion-dollar ‘war chest’ is meant to be deemed useless.
However, the country’s recent affinity for cryptocurrencies may be a strategically and conveniently planned back door for the country to still have access to global finance amidst a wave of sanctions.
How Putin and Russia will use cryptocurrencies to their advantage in their conquest of Ukraine is still yet to be fully understood, but we can certainly expect cryptocurrencies to continue to play a large role in how this whole situation develops.
What may be the biggest takeaway for cryptocurrency investors, or those that are considering their first foray into the space is that crypto has officially become political.
Whether it be state representatives campaigning on a pro-crypto ballet for the coming midterms in the US or a pan-European debate as to how to regulate cryptocurrencies in the face of war, the industry is continuing to become increasingly prevalent across the globe.
The global political machine is guaranteed to keep cryptocurrencies in the limelight for the foreseeable future… and hell, there is no such thing as bad publicity.
We already acknowledged that cryptocurrencies continue to trade like traditional risk assets, but one thing that the crypto industry has that others don’t is a fever pitch of global adoption. Crypto/Blockchain are potentially the most powerful growth asset/industry in the world!
In the short term, we’ll rely on our strong risk-management and technical analysis to guide us through shaky equity markets, but in the long term, we are still confident that the crypto industry will keep redefining the way that we use money, trade, and communicate.
And for anyone asking for a definitive choice between Bitcoin or Gold as the best flight-to-safety moving forward…
Why not Both?
**If we discussed a cryptocurrency that you would like to trade but isn’t offered on your current crypto exchange, please see coinmarketcap.com in order to view a profile on any tradable cryptocurrency, as well as a list of exchanges that do offer the coin for trading.**
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