The price of Bitcoin has tumbled amid fears that Russia will soon invade Ukraine and engage in an all-out war.
Bitcoin fell below $37,000 early on Tuesday morning, a precipitous 6.5% decrease from the day before. Since dropping, it clawed its way back up a bit to about $37,700 by midday on Tuesday, a number that is still much lower than the $45,000 it reached earlier this month.
Other major cryptocurrencies have also retreated. Ethereum was clocking in at $2,610 on Tuesday, a nearly 25% decrease from where it was at earlier this month. Ripple was at $0.70, down a whopping 10% in just the past 24 hours alone, while Cardano was registering at about $0.87.
Bitcoin investors have been in for a wild ride over the past year or so. Bitcoin began 2021 at about $30,000 but broke its all-time high several times that year.
The flagship cryptocurrency rallied early on in 2021 and hit nearly $65,000 in April before it retreated from that peak. The summer was difficult for Bitcoin, which struggled over concerns about regulation, although its value once again exploded near the end of September and rallied to an all-time high of $69,000 in November. Bitcoin is now worth about 45% less than it was at its November zenith.
Conflict in Ukraine has driven recent declines. U.S. officials say that Russia is gearing up for a full-on invasion of the Eastern European country, something that would rattle global markets and result in stinging sanctions.
The Ukrainian crisis entered a new phase on Monday when Russian strongman Vladimir Putin recognized the independence of two breakaway regions of Ukraine — the Luhansk People’s Republic and the Donetsk People’s Republic. Putin also ordered troops into Donetsk and Luhansk, further ratcheting up regional tensions.
Like Bitcoin, the stock market has been feeling the effects of the military escalation. The Dow Jones Industrial Average dropped more than 300 points on Tuesday, while the Nasdaq fell by more than 1%.
Bitcoin is a risky asset class, like speculative stocks, so anytime there is major market uncertainty, people want to invest in more secure assets, which is generally bad for risk assets and can drive down the value of cryptocurrencies.
Last year as consumer prices were quickly rising, some investors saw Bitcoin, and cryptocurrencies more generally, as a possible hedge against inflation. Recently, however, Bitcoin has been more in tune with traditional stocks.
“Bitcoin’s safe haven narrative has almost completely fallen apart as the rising possibility of military conflict and the worsening U.S.-Russia relationship puts the wider financial market in risk-aversion mode,” said Yuya Hasegawa, cryptocurrency market analyst at Bitcoin exchange Bitbank.
Instead of Bitcoin being seen as a safe haven during the Ukrainian crisis, gold has reemerged as the favored investment. Gold has surged in value and is trading at above $1,900 per ounce, its highest level in eight months.
Further adding to the downward pressure on cryptocurrencies and traditional stocks is the Federal Reserve, which is planning to hike interest rates for the first time in years next month.
The central bank indicated up to three rate hikes in 2022 during its last meeting in December, but markets are now pricing in much more in the face of rising inflationary pressure, with some Fed watchers predicting that the central bank could take the drastic move of initiating a half-percent hike right out of the gate. Consumer prices grew 7.5% in the 12 months ending in January, the fastest pace since 1982.
Because the situation in Ukraine is very unlikely to abate soon and the markets will be grappling with the fallout from the rate hikes all year, some Bitcoin experts are predicting that the cryptocurrency’s value will remain depressed and could slide even further still.
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In a Monday research note, John Roque of 22V Research said that Bitcoin might end up dropping below $30,000. Bitcoin briefly fell to below that price point last July, although it hasn’t been consistently below $30,000 since 2020.
“Bitcoin’s inability to hold $40,000 amid heightened Ukraine tensions means $30,000 is back in play,” Nexo co-founder and managing partner Antoni Trenchev told Bloomberg. “Geopolitics has, for now, replaced inflation as the primary driver of both traditional and crypto markets.”
