Russia’s invasion of Ukraine last week has brought even more volatility to the crypto market, experts say.
The global financial implications are just one of the many costs of war. Experts also fear a significant human toll, with Ukrainian President Volodymyr Zelensky announcing more than 100 Ukrainians were killed after the first day following the invasion. The invasion has also upended life for Ukrainian citizens, many of whom have sought to flee the country as Zelensky urges others to prepare to defend their homes against Russian soldiers and attacks.
As the war continues, volatility in global financial markets, including cryptocurrency, is sure to follow, experts say.
“Regardless of asset class, there’s a tremendous amount of volatility that comes with war,” says Doug Boneparth, a certified financial planner and founder of Bone Fide Wealth. “It’s going to make it that much more difficult for investors to stick to their strategies.”
Bitcoin dropped below $35,000 and Ethereum dropped below $2,400 immediately after the invasion started, though both have risen since then. Bitcoin has lost almost half its value since its November high of $68,990 thanks to the recent geopolitical tensions in Europe, looming inflation, and the prospect of interest rate hikes by the U.S. Federal Reserve, among other factors. Ethereum’s price drop is its lowest point since late January, with global stock markets sinking as well.
With no signs of a slowdown to what President Biden described as an act of war on the part of Russian President Vladimir Putin, experts say cryptocurrency investors should expect more volatility ahead.
But as with regular crypto volatility, experts say investors should stay the course with a long-term strategy. Here’s what crypto experts are saying about this week’s crypto market volatility, spurred by Russia’s invasion of Ukraine.
How Experts Are Reacting to Swinging Crypto Prices
Experts say Russia’s invasion of Ukraine has pummeled risk assets while traditional safe havens like gold and the U.S. dollar are trading higher. For crypto investors, here’s what they say is moving the market right now:
Crypto Is Tracking the Stock Market
The case for Bitcoin as a “safe” asset like gold is weakening, because of its volatility and increased correlation to stock markets, says Ben McMillan, chief investment officer of IDX Digital Assets. For Bitcoin to experience a sustained rally past $45,000, there would need to be “a return of investor risk-appetite across asset classes which, for the time being, looks like it will be largely determined by the unfolding of events in Ukraine,” McMillan says.
Though crypto has long been championed by advocates as an asset uncorrelated from traditional financial markets, Boneparth says the crypto market is reacting to the news of Russia invading Ukraine in sync with stock markets.
“My first observation is something that we’ve observed before, which is that crypto, specifically Bitcoin and Ethereum, are risk-on assets,” says Boneparth. “They’re going up and down just like equities do. You watch stocks sell off overnight and throughout the day today, and you’re watching crypto pretty much do the same exact thing.”
Boneparth says time will tell if crypto investors were simply experiencing an initial knee-jerk reaction to the situation “Does [crypto] remove itself from being correlated to equities, or does it continue to follow the same pattern as equities? We’re going to find out,” he says.
More Mainstream Crypto Adoption
Mainstream adoption of crypto is what is causing the crypto market to increasingly move in sync with the capital markets, says Laura Shin, a crypto podcast host and author of “The Cryptopians: Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Craze.” The determining factor for how crypto markets do over the next few months is “whether the crypto die-hards or more macro-driven folks drive the narrative, and whether the crypto traders in leveraged positions get wiped out and drag the markets down with them,” she says.
Slumping Prices In Recent Months
The reaction of the crypto market right now is “somewhat normal” since it’s been in a decline over the last few months, according to Wendy O, a crypto investor and popular TikToker. She says we are seeing “more volatile bearish price action with global uncertainty,” and unless we are able to break out of Bitcoin’s current downtrend, the market will “continue to see lower highs.”
What Does This Mean for Investors?
Cryptocurrencies are highly volatile assets, a quality that’s even more pronounced than usual due to Russia’s attack on Ukraine.
Experts say the best thing investors can do right now is stay calm and avoid knee-jerk reactions to the changes in the market. Instead, stick to your long-term investment strategy. If you don’t have a long-term plan, Boneparth strongly suggests making one now.
“Be very careful to not make financial mistakes that you’ll regret down the road, because you either panicked or couldn’t handle the volatility that’s taking place,” says Boneparth. “Your ability to stay disciplined and stay invested is ultimately what will lead to success or failure.”
While there probably aren’t any immediate changes crypto investors should make, it’s a good reminder that crypto assets are extremely volatile. That’s why experts say most investors should stick to the big two cryptocurrencies, Bitcoin and Ethereum, and only invest what they’re OK with losing or no more than 5% of their total portfolio.
Always prioritize important aspects of your finances, such as saving for emergencies, paying off high-interest debt, and saving for retirement, ahead of cryptocurrency investments. As for where you buy and trade crypto, stick with a mainstream, high-volume cryptocurrency exchange, like Coinbase or Gemini, that proactively complies with evolving federal and state regulators.