Thursday, May 19 2022

Russia’s invasion of Ukraine sent cryptocurrencies plummeting as bitcoin and other digital coins reacted to the news along with stocks, further cementing the crypto market’s recent reputation as a than a risky asset.

Cryptocurrency company bosses are now coming forward to say bitcoin is not a risky asset, even though many previously thought it was a store of value – drawing comparisons to others safe-haven assets such as gold.

Crypto bosses surprised by BTC war plunge

Samson Mow, chief executive of social mobile game developer Pixelmatic and chief strategy officer of blockchain technology company Blockstream, wrote on Twitter: “Bitcoin is trading as a risky asset, but it is not a risky asset.”

Meanwhile, the CEO of leading cryptocurrency platform FTX, Sam Bankman-Fried, shared his surprise at bitcoin’s reaction to the Russian invasion. He wrote, “Over the past day, the S&P 500 is down around 4% and BTC down around 8%.

“Why? Well, I mean, because of the obvious. It makes sense that stocks are down. War is generally bad. What should BTC be doing here? Well, on the one hand, if the world gets shittier, people have less cash on hand Basically selling BTC – along with stocks etc – to pay for the war.

“On the other hand, this is probably destabilizing for Eastern European currencies. And, more generally, for Eastern European financial systems. Which means they could look for alternatives. If you were in Ukraine right now, where would you trust your money?

“So there are arguments back and forth for what should happen to BTC right now. I’m not really sure I would have guessed it would go down based on the fundamentals. But it’s down, a lot!

Mainstream Adoption: Emulating Traditional Markets

Over the past few months, bitcoin had steadily gained a reputation as digital gold and had become a store of value thanks to its rare nature. It has a finite supply, limited to a maximum of 21 million pieces.

But it hasn’t always lived up to the refuge’s narrative. Since 2020, the performance of BTC has often been correlated with stock market benchmarks, such as the S&P 500 and Nasdaq composites. This happened amid a diversification in the pool of bitcoin investors, with major banks and other financial institutions becoming increasingly exposed to the market.

According to Conn Stevenson, founder of bitcoin consultancy Timechain Solutions, the reason for this post-2020 correlation between digital assets and stocks is the “financialization of bitcoin due to more sophisticated and institutional investors.”

“They see it as a risky asset. When adoption goes parabolic, that correlation breaks away,” said Stevenson on Twitter.

Over the past two years there has also been a boom in adoption by retail investors, and these newcomers are more prone to panic selling: short-term traders are defined as those who hold the coin in below 155 days and are statistically the most likely to be panicked. -spending during any period of volatility, according to Glassnode analyst Checkmate.

Regain refuge status

However, long-term investors, who view the oldest cryptocurrency as a store of value, hold a significant portion of BTC supply – 76% of illiquid BTC supply is held in wallets that do not are ever sold, according to Glassnode.

Indeed, crypto die-hards have seen the market change many times and believe that bitcoin could regain its safe-haven status as the conflict deepens.

“The correlation between crypto and equity markets has been quite strong over the past few months, both on inflation and geopolitical issues,” said Nigel Green, Founder and CEO of de Vere Group in comments sent by email at Capital.com.

He added: “But all of that could still change. The fundamentals of “digital gold” for bitcoin remain unchanged, namely its limited supply.

“Furthermore, I think we could see it once again become considered a safe-haven asset as the situation in Ukraine evolves, as it is non-extricable, which could become extremely important as centralized authorities take drastic measures.”

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The main difference between trading CFDs and trading assets, such as commodities and stocks, is that you do not own the underlying asset when trading a CFD.
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