Bitcoin May Drop Below $30,000 Due to Ukraine-Russia Crisis
Bitcoin was falling Tuesday amid the ongoing crisis between Russia and Ukraine that analysts said could push the world’s most traded cryptocurrency below $30,000.
Russian President Vladimir Putin ordered troops into separatist-held parts of eastern Ukraine in what the Kremlin called a “peacekeeping” mission, CNN reported, just hours after he signed decrees recognizing the independence of the Moscow-backed regions.
‘A Perfect Storm’
Bitcoin was down slightly to $37,452 at last check Tuesday, having dropped to a more than two-week-low of $36,350.
Ethereum was off nearly 1% to $2,582 and dogecoin was down 2.5% to $0.183102.
Stocks were also falling Tuesday, with the Dow Jones Industrial Average down 100 points to 33,914 in premarket trading.
“The Ukraine crisis, compounded by rising interest rates and crypto regulations in the US, may create a perfect storm driving the bitcoin to test the $30,000 level,” said Winston Ma, managing partner of CloudTree Ventures, Author of The Digital War – How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace.”
Ma said the Ukraine conflict has created more uncertainty to the crypto market, on top of imminent rate hikes from the Fed Reserve, further testing the long hailed notion that bitcoin could serve as an asset to hold during economic or geopolitical chaos.
“So far, Bitcoin-crypto assets are acting more like high growth tech assets, with the cryptocurrency continuing to move in lockstep with growth-sensitive, risk-on assets like equities,” he said.
The decline of crypto was commented on social networks by alarmist posts from users.
“That’s the problem of being a trader,” one user posted.
Another imagined a conversation between a father and his son. Father who invested In bitcoin tells the son he lost their house.
Ma said that it is possible that the increased institutional participation of crypto trading since 2020 “has made the crypto assets more sensitive to risk-off/risk-on trends in traditional markets.”
“The Russia-Ukraine crisis is affecting all risk markets at the moment, not just bitcoin,” Nicholas Cawley, strategist at DailyFX said. “The news flow from the region is seemingly biased from both sides while the constant swings in good news/bad news make it difficult to value and trade the market at the current time.”
Until this changes it is difficult to see any reason to trade bitcoin from either the long or the short side, Cawley said, adding that from a technical perspective, the break below support at $39,600 has left bitcoin vulnerable to further losses.
“This negative outlook is also backed up by the market’s take on recent good news,” he said.
Cawley said that recent news that Ukraine is in the process of legalizing bitcoin, the Fidelity launch of a Bitcoin ETF in Europe, and stories that BlackRock, the $10 trillion asset manager is preparing to offer cryptocurrency support for its customers, “would normally give the space a push higher but this hasn’t been the case.”
‘An Unwilling Participant’
Cawley said that it looks like bitcoin is going to continue to drift sideways with a marginal bias to the downside “until the conflict in Eastern Europe is resolved.”
“Bitcoin is an unwilling participant in the volatility that is hitting all risky assets from Russia-Ukraine tensions,” Edward Moya, senior market analyst for the Americas with Oanda. “Bitcoin’s rollercoaster ride won’t end anytime soon, but it could get ugly if Wall Street sees a major selloff if investors begin to expect a prolonged military conflict.”
Bitcoin could be the victim of a scramble for cash, Moya said, “but once that panic selling passes, long-term bets would quickly return”
Moya added that “hodlers may be tested shortly,” using the term for crypto investors who hold their positions regardless of price.
“As we look ahead to a new trading week with a serious fundamental cloud overhead, there are many assets that face significant volatility and directional variability depending on what world leaders decide,” said John Kicklighter, chiefs strategist at DailyFX. “However, my first consideration for markets starts with a simple assessment of liquidity and chronology.”
If a military action happens over the next week, most major capital markets will be closed, Kicklighter said.
“There will be a little FX liquidity, but not truly accessible in the scale to offload risk,” he said. “There is one popular asset type, however, that is famous for its weekend trade: cryptocurrency.”
While some would consider this newer asset class an alternative to fiat and thereby a safe haven, Kicklighter said, “the practicality now is that there is a disproportionate interest from typical investors who would respond by attempting to offset risk on their broader portfolio by either unwinding or taking a short to hedge the market’s positive correlation to equities lately.”
Although there are a number of more speculative coins out there, he said, “my focus is on the most popular and structurally-integrated: Bitcoin.”
“The 39,500-figure is first-level support heading into this week, but 32,500 looks more like the ‘point of no return,'” Kicklighter said.
Alex Lemberg, CEO of Nimbus Platform, said “Ukraine isn’t pushing anything, except maybe it’s border from being crossed at the moment.”
“The current state of the market has already done quite a job at pricing in the current turmoil coming from that region,” he said. “This should level off around these levels regardless of what happens going forward in the near term.”
Lemberg said that “there is way too much capital earmarked to flow into the markets from institutions and the current sell off in the debt markets will only apply more pressure.”
“This capital won’t continue to stay sidelined much longer and certainly not due to Russia and Ukraine conflict,” he said.
Last week, crypto analyst Benjamin Cowen warned that bitcoin could drop to lower levels as the markets head into a quantitative tightening and a potential raise in interest rates in March.