\n<\/p>\n
\n Cryptocurrency Bitcoin, the original digital token, has reverted to acting like just another risk asset by Friday.\n <\/p>\n
The sustainability of cryptocurrencies as a refuge is already facing a test after the digital alternatives to fiat were championed in the wake of Russia\u2019s attack on Ukraine. After surging as much as 20% at the start of last week and briefly topping $45,000 on speculation that sanctions and a collapsing ruble would drive Russians into cryptocurrencies such as Bitcoin, the original digital token reverted to acting like just another risk asset by Friday. It was trading at about $38,390 as of 6:56 p.m. New York time on Sunday, close to the lowest since Feb. 28.<\/p>\n
Bitcoin was born in the wake of the global financial crisis as an alternative currency outside the traditional monetary system. Since that time, it has been promoted as a means of exchange and a store of value that is detached from governmental control. Those use cases had become secondary as speculation become the primary use case until the war renewed the haven discussion.\u00a0<\/p>\n
\u201cIt\u2019s a monetary asset that you can bring with you and not be subject to the banking system,\u201d said Jeremy Schwartz, global chief investment officer at WisdomTree Investments Inc. \u201cA lot of what\u2019s happening in Russia I think helps illustrate for people the value of Bitcoin.\u201d<\/p>\n
Schwartz says that while many investors still see crypto as a speculative asset, the actions of the past week \u201cmakes you think that there\u2019s a big part of the population that would like to have a place to store their cash and take it with them if they need it.\u201d<\/p>\n
The brief rally also renewed the debate around whether cryptocurrencies will be used to skirt the sanctions U.S. and NATO allies put on Russia. Even politicians voiced that concern, with Massachusetts Senator Elizabeth Warren saying crypto is \u201ca shadow world\u201d that Russians and other countries can use to help \u201csanction-proof\u201d themselves.\u00a0<\/p>\n
FTX CEO Sam Bankman-Fried and Brett Harrison, who is president of the exchange\u2019s American arm, wrote in a blog post that it\u2019s not that easy to use crypto to circumnavigate sanctions.<\/p>\n
\u201cThe world\u2019s attention on Russia\u2019s aggressive conflict with Ukraine, combined with the new omnipresence of cryptocurrencies, has created the natural question now being asked in all major media: can cryptocurrency be used by sanctioned parties to avoid U.S. sanctions?,\u201d they said. \u201cThe short answer is: no.\u201d<\/p>\n
The data seems to bear this out too. Ruble-denominated crypto activity was just $34.1 million on March 3, according to Chainalysis. That\u2019s down significantly from a recent peak at $70.7 million on Feb. 24 — and the $158 million record in May 2021.<\/p>\n
A more heartening development that emerged had to do with the donations that poured into Ukraine via crypto. Alex Bornyakov, deputy minister of Digital Transformation of Ukraine, said Friday that about $50 million has been raised that way and the nation expects the amount to double in a matter of days. An analysis by Josh Olszewicz at Valkyrie shows the inflows included donations via Bitcoin, Ether, Polkadot, Solana, Dogecoin and others.\u00a0<\/p>\n
While Bitcoin for part of the week decoupled briefly from its usual act of mirroring stocks, some suggested that trend may not last — Michael Novogratz of Galaxy Digital Holdings cautioned against assuming that the digital token is becoming an uncorrelated asset.\u00a0<\/p>\n
David Duong, head of institutional research at Coinbase Global Inc. agrees, saying \u201cit\u2019s tough to sustain the current divergence in performance between crypto and other risk assets in light of the shock to the global financial system more broadly.\u201d Duong partly credits the recent crypto rally to technical factors. \u201cThe invasion of Ukraine forced markets to liquidate heavily at the end of last month,\u201d he wrote in a note. \u201cAmong other factors, positioning has helped crypto markets retrace, but we think they remain in an unstable equilibrium.<\/p>\n
Steve Sosnick, chief strategist at Interactive Brokers LLC, says for a brief while, Bitcoin appeared to be breaking out of its recent tendency to move in the same fashion as technology stocks — but that\u2019s fading. It would have been a solid hedge for someone who held it prior to the ruble\u2019s collapse, \u201cbut now it is too valuable and volatile in ruble terms to use it as a means of exchange,\u201d he said.\u00a0<\/p>\n
\u201cBearing in mind that crypto hasn\u2019t been around long enough to be truly tested in times of crisis, it is important to remember that even gold doesn\u2019t always rally during a financial crisis,\u201d he said. \u201cAlso remember that a hedge doesn\u2019t have to rally — it just needs to hold its value. In that sense, Bitcoin has done OK.\u201d<\/p>\n<\/p><\/div>\n
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