Cryptocurrencies Buckle In The Wake Of Geopolitical Tensions

• Russia’s invasion of Ukraine rattled markets.
• Stablecoins seem to be soaring with the current risk-off sentiment.
• Gold peaked at 15-month highs as investors turn their eyes to the age-long asset class.

Russia invaded Ukraine after weeks of speculation. The crypto markets appear to have crumbled under the pressure.

News Of Attack Toppled Crypto Market

On a national broadcast, Russia’s president, Vladimir Putin, disclosed that the military was going to carry out a “special military operation” in Ukraine. Within moments of the news, the sounds of explosions could be heard around Ukraine. 

The information sent waves of panic around the world, affecting both the equity and crypto markets. Bitcoin dropped nearly 7% to about $34,800, while Ethereum and XRP both dropped over 9%, with Ethereum dropping to about $2,330. Assets like XRP, Cardano, and Solana have since struggled to make a significant rebound.

A market analyst at Oanda, Edward Moya, said that “many crypto investors have been humbled by the last crash. They are hesitant to increase holdings given the tremendous uncertainty for risky assets.” According to data from CoinMarketCap, trading volumes spiked with the release of the news.

Terra, Cardano, and Solana are seeing trading volume jumps ranging from 60 to 110%. Despite the market-wide decline, stablecoins are not just holding their own but actually growing in market share. 

Stablecoins now have a combined market cap of over $180 billion. A 26.7% leap from this time last year. It appears that instead of taking money entirely out of the markets, investors are looking to stablecoins. UBS executive James Malcolm said, “There’s risk aversion, which creates flight to relative safety,” adding, “You park your money temporarily without taking it out of the ecosystem, and all the cost and hassle that involves.”

Gold Winning And Crypto-Correlation With Traditional Finance

The news of the crisis in Ukraine has given a boost to traditional safe-haven assets and commodities. Gold is likely the major gainer, reaching its highest point since September 2020. A senior analyst at Natixis SA, Bernard Dahdah, said they “expect that gold prices break through $2,000/oz in the coming days if the conflict further escalates,” adding that “a quick correction will ensue once the conflict’s intensity winds down.” 

At one point, the asset increased by as much as 3.4% to trade at $1974.34 per ounce. At the moment, it appears that the correlation between the crypto market and the traditional financial market continues, which is a pressing concern for some investors.

However, FTX.US CEO Brett Harrison explained last week in an interview with CNBC that the recent correlation was due to the current risk-off sentiment. He said, “I think in risk-off situations everything is correlated; all correlations go to one when people are generally afraid of what’s happening in the market.”