Russia-Ukraine Crisis: Cryptocurrencies will not be shielded from global volatility, says industry

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With wars come worries and uncertainty and that is exactly what has been visible in how global markets have been reacting to Russia’s invasion of Ukraine. Stock markets plunged in trade on February 24 after Russian President Vladimir Putin announced a military operation, and cryptocurrencies were not spared from the aftermath.

While Bitcoin, Ethereum, Shiba Inu, Dogecoin, and others recovered after a drop, the crypto industry is ready to face the impact of global jitters and does not believe that tokens will be shielded from this volatility. Bitcoin had dropped to $34,324, the lowest since January 24. It is now trading at above $38,500.

WazirX co-founder and CEO of exchange WazirX said, “We will see the same results on crypto as what is seen in global financial markets, especially Bitcoin. Many have been saying that Bitcoin will gain from this, but I don't believe so. Ultimately, everything is a function of sentiments and war is always a bad sentiment for financial markets.”

For Indian investors, Shetty added, it’s a double whammy. A 30 percent tax rate was announced in the budget on gains from virtual digital assets like cryptos starting FY24, and regulatory clarity is still awaited. War concerns and drop in prices just add to the uncertainty.

“Geopolitical volatility has a broad economic impact, and crypto is not immune to this. Users must keep in mind that risk and reward go hand in hand and can be influenced by outside factors,” said Ashish Singhal, founder and CEO of exchange CoinSwitch.

Gaurav Dahake, founder and CEO of Bitbns sees this as an initial reaction to the situation in Ukraine. As per historic behaviour, markets tumble on the day the wars begin and then show signs of recovery. Dahake expects the same to happen with cryptocurrencies.

“A similar thing happened in the case of Covid-19 too - in March 2020, even before, there were just about a thousand cases in India, the markets crashed, pre-empting that the impact of the pandemic would be huge. It was only later that the market actually started to recover. In the current context, we are witnessing a similar trend,” he said.

However, WazirX’s Shetty thinks it's too soon to rejoice on the back of the recovery witnessed after the initial fall in prices.

“It has been only over 24 hours since the war started. It will be two or three weeks before we know the long-term impact of the Russia-Ukraine crisis. Investors too are in wait and watch mode, they are either neutral or bearish. But no one is bullish at the moment,” he said.

According to the Cambridge Centre for Alternative Finance, Russia was responsible for over 11 percent of the global Bitcoin hashrate as of August 2021, third after the United States and Kazakhstan.

Hashrate is a measure of the computing power dedicated to the network, as "miners" run software on specialised hardware in an attempt to win freshly minted BTC—by doing so, they help secure the network from attack.