Bitcoin, Ethereum and general cryptocurrency prices have been experiencing enormous volatility over the past few weeks, owing largely to the increasing geopolitical tensions emerging from the conflict between Russia and Ukraine.
The price of Bitcoin briefly fell below $35,000 ($48,882 AUD) earlier this week, before rebounding strongly over the following days. Bitcoin is currently trading at $37,447 ($52,555 AUD) and as global tensions continue to rise with Russia, investors are bracing for another wave of extreme volatility.
The United States and a coalition of other Western nations recently moved to ban Russia from the SWIFT, the world’s primary electronic payments system and stated that they would further penalize Russia’s central bank.
As reported by Reuters, the former deputy chairman of the Russian Central Bank, Sergei Aleksashenko said that these sanctions would devastate Russia economically. He said: “It means there is going to be a catastrophe on the Russian currency market on Monday.”
A popular narrative has emerged that Russia could potentially use cryptocurrency to circumvent these economic sanctions. Despite this narrative being taken up by bitcoin and crypto bulls on Twitter, the price of digital assets have remained firmly in the red, indicating that there may be a flaw in the thesis.
Can Russia Use Crypto To Avoid Sanctions?
Unfortunately for Russia, the world of blockchain is not as decentralized nor as “laissez-faire” as it once was, and the rise of blockchain surveillance firms have made it increasingly difficult to conduct “unwarranted” transactions.
Blockchain-data analysis platforms such as Chainalysis, offer services to large financial firms and governments to track, record and even interrupt transactions on the blockchain if the software considers transactions to be suspicious.
As reported by Forkast, Caroline Malcolm, the head of international policy at Chanalysis, said that they would be working to make sure that bad actors could not empower Russia with the transfer of crypto assets. She said: “The cryptocurrency ecosystem kind of put in place measures to identify transactions from sanctioned entities abroad.”
Wayne Huang, CEO of crypto exchange XREX, said: “We’ve not been able to service Russian nationalities.” XREX and many other major exchanges follow FATF guidelines and adhere to sanctions lists provided by the U.S. and United Nations.
What Can Crypto Investors Expect?
Speaking on the price of Bitcoin, Alex Kuptsikevich, senior financial analyst at FxPro said,
“If the situation in Ukraine escalates even more, bitcoin may fall below $30,000 as investors leave for defensive assets… otherwise, the country will not survive the growing sanctions pressure from Western countries.”Alex Kuptsikevich
Speculative market sectors like cryptocurrency, high-growth tech or anything with a high Price to Earnings (P/E) ratio tend to get hit quite hard during times of global turmoil. Anything that could be considered “overvalued” gets sold off quickly as investors look for safe haven assets that can weather a potentially nasty geopolitical storm.
Despite popular narratives suggesting that the price of Bitcoin is uniquely volatile, Bitcoin actually tends to move in fairly tight correlation with other speculative, high-growth stocks like Tesla, Shopify & Roku.
The other prevailing narrative that Bitcoin would act like ‘digital gold’ has taken a hit as well — as the price of the shiny yellow metal has climbed steadily during the recent turmoil, while Bitcoin’s price went in the opposite direction.
Ultimately, Bitcoin and the entire crypto market remains one of the most unpredictable areas of the modern financial sector, and in times of war, markets can be extremely unkind to speculative assets. In the meantime, it’s expected that the price of Bitcoin will continue to fall, unless market conditions change drastically in the near future.