Bitcoin’s choppy week amid Russia’s Ukraine invasion shows the cryptocurrency might not be the safe haven backers believe it to be.
Some digital-asset investors have previously described bitcoin as “digital gold” – referring to the idea that the cryptocurrency could serve as a "store of value" similar to that of the precious metal and would hold its value in times of geopolitical or economic turmoil.
Instead, the price of bitcoin (BTC) is down 11% on the week.
Since Russian President Vladimir Putin announced a “special military operation” in Ukraine, the world’s largest cryptocurrency by market capitalization has struggled to break above the $37,000 mark in the last 24 hours after dipping below $34,400 briefly earlier Thursday. U.S. President Joe Biden imposed fresh sanctions against Russia.
Gold, in contrast to bitcoin, is trading at its highest levels in over a year. The precious metal, often touted as a safe-haven asset at times of crisis and war, is up 1.4% on the week and reached a spot price high of $1,974 today.
“Bitcoin has shown itself better at protecting against inflation expectations and less suited to protect against geopolitical risk – something that gold has proven, again, to be better suited for during this crisis,” said Gavin Smith, CEO of the digital-assert firm Panxora.io, in an email to CoinDesk.
Conor Keohane, a trader at Eqonex, a Nasdaq-listed crypto exchange company, said in an email that "with geopolitical forces top of everyone's mind, today we see a risk-off sentiment and a flight to gold, Swiss francs and yen."
"The safe-haven assets are bid, while in high-risk assets like crypto we will see continued downward pressure as risk-off continues," Keohane said.
Panxora's Smith says that in the coming weeks this dynamic might turn around.
“As the West starts to announce sanctions, we anticipate the energy products to remain very strong,” he said. “This should start to cause a decoupling between bitcoin and equity markets and should result in bitcoin rising significantly over the next two to three months.”
“The catalyst for this will be the acceptance that inflationary pressures are likely to continue rising in the medium term, causing continued cost-of-living increases and continued strains on Western government finances,” said Smith.
Oil prices exceeded $100 a barrel for the first time since July 2014.
UPDATE (Feb. 24 19:43 UTC): Adds comments from analyst Conor Keohane.
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