The worst has happened: Russia has invaded Ukraine, world leaders are reeling to formulate a response, and fear of a more widespread European conflict hangs thick in the air.
As expected, global markets have reacted to the news, with equities plunging across the board, certain commodities rallying, while fear, uncertainty and doubt grip investors across the world.
The question crypto investors are asking is how bitcoin will fare in the face of a rapidly escalating situation. So far, it’s holding up relatively well, dropping back to its $35,000 levels.
But for how long?
It all comes down to this: Will investors flock to ‘digital gold’ as a possible disaster hedge, or will they treat it as a growth stock, and dump it for ‘safer’ bets?
This week has seen bitcoin de-correlating from both gold and the NASDAQ. At some point soon, it will be forced to pick a side.
Whichever way it goes could determine Bitcoin’s fate for years to come.
- Russia invades Ukraine and markets react.
- Investors are running to store-of-value assets.
- Bitcoin posed for its biggest challenge yet.
How are assets responding to the Conflict?
Moscow stock market
As of writing, the Moscow stock exchange is down 25%, while the national currency, the ruble, has crashed to a record low against the US dollar.
This caused a short suspension of trading activity on the Moscow stock exchange earlier today.
US equity markets
Meanwhile, US markets have opened with volatility across the board.
Tech stocks, especially FANG stocks (Facebook, Amazon, Netflix and Google) had already taken a battering before the invasion, wiping out all gains these tech stocks had made in 2021.
Now, NASDAQ has opened as analysts were predicting, at levels not seen since the beginning of the pandemic.
In a tweet yesterday, Gareth Soloway made an interesting point:
A point that was swiftly invalidated within a few grim hours.
Certain commodities directly linked to war (as either materials used in the manufacturing of weapons and vehicles, fuel, food, or basic wartime supplies) have rallied in response to Russia’s invasion.
Let’s have a closer look at them.
European natural gas
The price of natural gas in Europe has surged 41% as of this morning, with fears of a supply disruption should the West choose to impose harsher sanctions against Russia, and Germany’s energy minister suggested the nation could manage a year without Russian supplied gas.
Brent Crude oil surged over 7% this morning to $105 per barrel, levels not seen since 2014. In the meantime, WTI crude oil hits $100 per barrel.
It is worth mentioning that Russia is the third largest producer of oil in the world, with the US importing an estimated 12m to 26m barrels of crude oil (and petroleum products) per month from Russia.
One of the most crucial metals known to man, aluminum is needed for a huge range of applications, and plays a major role in arms manufacturing (due to its low weight), with many guns utilizing an aluminum alloy.
Aluminum hit an all-time high in London, surpassing its 2008 peak.
Wheat is a centerpiece war commodity, and Russia and Ukraine are two of its largest exporters: at time of writing, wheat prices have risen to reach a 9-year high.
It’s also worth noting that China has just announced it will allow imports from Russia. This could have an effect on wheat price volatility.
Gold is on an absolute tear, as investors flock to what is the most enduring store of value in the world.
It’s not surprising that gold is printing higher prices right now, with it having climbed back to levels not seen in over a year. Gold is considered the go-to store-of-value asset for the traditional market, and in times of uncertainty, investors do not want to be exposed to tech stocks and speculative assets. They look for a safe haven to put all their money into until things calm down.
As of September 2021, Russia’s gold reserves sat at 2298.53 tonnes.
Silver and copper
Silver tends to follow gold’s lead, and rally once the price of gold is considered steep by investors.
As of this morning, it has broken out of its 200 moving daily average, as DJ SILJ shows in this chart.
Even copper is on the rise, with a daily increase in price of over 2.5%.
Decision time for bitcoin
So, which will it be?
After the ‘covid crash’ in March 2020, gold was the first to rally, with bitcoin following suit around 9 days later. A brutal correction paved the way for a huge and astonishing run that lasted until May 2021, when bitcoin peaked at around $64k.
As Plan B shows in this chart of his, gold is on the rise, whilst bitcoin is falling.
They have completely decoupled, and it shows that the first movers, who want less exposure to volatility, are striking for gold.
Meanwhile, as we reported on yesterday, bitcoin has also been in the process of decoupling from the NASDAQ since the time of the November high.
And that means we find ourselves in new territory: the prospect of the first military conflict in Europe in Bitcoin’s lifespan. How it behaves in the face of war could chart its course for years to come. Should gold continue to rally, will investors decide to opt for the ‘digital gold’ narrative? Or will bitcoin be treated as a risk-off asset, a tech stock, to be avoided in the face of global instability? It’s a huge question that has yet to be answered.
Russia’s invasion of Ukraine is a tragedy unfolding as we speak, the implications of which are unknown. Historically, extreme panic has presented buying opportunities across risk-on assets. However, we could yet see more downside in the coming days.
Whatever happens, we’ll be there for the Banter Fam every step of the way.
We’re in this together!