As we all know, Russia took military action in the Ukraïn last night. Since then, Bitcoin and crypto prices have been crashing. We analyse the situation, share the first reactions from the crypto community and analyse developments coming.
The world economy held its breath after Russia’s military action last night. The cryptomarket is no exemption to that. So, of course, we analyse current affairs, share first reactions from the crypto-community and try to foresee what’s to expect next.
We start with an overview of the effects on various Bitcoin trading markets.
What’s the effect of Russia’s actions on Bitcoin and crypto spot prizes?
As you can see in our overview of live crypto prizes, the live Bitcoin prize and prizes of cryptocurrencies are crashing. This is explainable. Whenever there are microeconomic crises of increasing uncertainties in financial markets, investors show less risk appetite and convert their portfolios into safer investments. Due to this common reaction, the number of sellers increases while (far) less buyer activity. Therefore, since spot prices are based on the law of supply and demand prices will go down.
Below you can see the live Bitcoin price with our premium broker Bitvavo.
What does the Russian action mean for Bitcoin and crypto leverage trading?
When we analyse the crypto derivatives market, we have to realise that investors use their portfolios as collateral for leveraging Bitcoin positions. When Bitcoin prices fall, the collateral becomes vulnerable for execution. Due to these forced sales, the supply of altcoins does also rise. Therefore the prices of altcoins decrease, so the value of collaterals decreases as well. Since the collateral will be less valuable, more collaterals will be executed. This effect is called the ‘crypto snowball‘.
What does the current situation mean for Bitcoin and crypto options and futures?
Ass we look at the prices for derivatives on Huobi Exchange, we also see that various swaps are plunging. So, of course, there are chances, but it’s highly advisable to be very cautious and do your own research.
What are the effects of the crypto crash on over the counter markets?
For the bearish strike, there is no difference whether the strike is of exchange spot prices or on over the counter prices. Therefore, when we look at the private over the counter markets like Local Bitcoin, where retail investors can sell crypto Peer 2 Peer, we see that the demand for Bitcoin and other crypto rises. For example, at the time of writing, we see bids from Ukraïne and Russia on LocalBitcoins rising as high as EUR 34.995,05 while the spot price at the same time is EUR 31.579,78.
What to expect next for Bitcoin and crypto prices?
At this moment, we see financial markets plummet on a broader range. Especially tech funds, which are considered relatively risky, are falling. Thereby, we have to consider that the American markets are not open yet. The expectation is that American markets will plummet as well.
Furthermore, European and American governments and political bodies like NAVO and the UN are discussing which sanctions to put on Russia. Authorities will communicate these sanctions soon. As their target is to hit Russia financially, we must assume these authorities consider trading embargoes and destabilisation of the Russian financial markets. Once they announce these sanctions, we can expect a further impact on the financial markets.
Will the sanctions to Russia have a negative effect on Bitcoin and crypto prizes?
On the one hand, Bitcoin and crypto are part of the financial system and will react to any hindering measures. On the other hand, the Russian financial industry might use Bitcoin and other cryptos to keep trading and doing business, leading to increasing demand in the short term. A rise in demand will lower the impact of the ongoing crypto crash and might even lead to a reversal in the short time.
On the other hand, when other countries signal such an effect, it opens the doors for regulators to take further action on the Bitcoin and crypto markets, leading to further uncertainty among crypto investments.
What will be the long term effects on the crypto market?
At this moment, it’s too early to foresee what the long-term effects on Bitcoin and crypto will be. There are too many uncertainties. Questions to be answered in the short term to provide a long term outlook will be:
- How severe will the sanctions against Russia be?
- To which extend will Russia continue it’s military operations?
- Will the crypto crash be so severe that fundamentals are touched?
- What will be the effect of the current situation on inflation?
- Can Bitcoin live up to it’s reputation as ‘digital gold’ and ‘inflation hedge’?
Regarding the last question, at this moment, denial seems to be the correct answer, giving the current price action for both assets.
Of course, we will follow the current situation and provide further updates, either on our site or through our Bitcoin- and crypto updates (in Dutch) on WANT.NL.
First crypto insider reactions on current situation
Of course, the situation is a hot topic among investors, and crypto investors are no exemption. At first, we see Elon Musk hammering on the importance of being independent for energy.
Furthermore, Ethereum (ETH) co-founder Vitalik Buterin shared a remarkably pronounced point of view.
As we all see, the situation is agitated, so our tips regarding how to trade crypto in uncertain circumstances and lessons learned from volatile prices might come in handy.