In the wake of news that Ukraine is being invaded by the Russians, global money markets began tumbling down, along with risk assets led by Bitcoin which experienced a downfall of around 12%. Oil on the other hand rose to levels that haven’t been seen since 2014. Safe haven assets such as Gold and Silver also experienced higher inflows of capital.
The main question here is: should you be worried that Bitcoin, which is referred to as digital Gold by some investors and as a risk-off asset by others, which experienced a 12% fall in the wake of global geopolitical instability has mimicked other risk assets? The short answer is no, and here’s why:
Bitcoin, a digital asset that experienced a price rise from a value of $0 in 2009 to about $69,000 in 2021, experiences 80-90% corrections roughly every 4 years and has been in a secular bull market for over 10 years.
I believe that Bitcoin is currently in the process of becoming a mature asset class, and what is a sign of a maturing asset you might ask? For one, a longer economic cycle, which fits the current narrative, and invalidates the double top analysis which has recently been presented by a few crypto social media influencers. Another sign that corroborates the idea of a maturing asset is that third parties have a lesser effect on price, a prime example is Elon Musk; his tweets had significantly influenced the market in both directions in 2020 and early 2021. However, his influence quickly dissipated and currently holds little to no weight in the digital currency ecosystem.
So if Bitcoin is maturing as an asset class, why did it follow suit with other risk assets? The answer is simpler than you might think; the threat of a possible global thermonuclear war became a reality for most as president Putin announced that he’s invading Ukraine, and news with this level of possible ramifications shook even the oldest and most mature of markets. But the facts remain that not only did Bitcoin have a double digit fall in the wake of the news, it also managed to rebound into new local highs in less than 24 hours proving that even a major event of this scale which affects global markets is having a declining effect on Bitcoin’s price over time.
Featured Photo by Kris Møklebust