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As geopolitical tensions rise, the cryptocurrency’s price has fallen. Bitcoin has experienced a choppy week amid Russia’s Ukraine invasion. Observers suggest the cryptocurrency might not be the safe haven backers believe it to be.
Some digital-asset investors have previously described bitcoin as “digital gold”, referring to the idea that the cryptocurrency could serve as a “store of value” similar to that of the precious metal and would hold its value in times of geopolitical or economic turmoil.
Instead, the price of bitcoin is down 11% on the week. Since Russian President Vladimir Putin announced a “special military operation” in Ukraine, the world’s largest cryptocurrency by market capitalization has struggled to break above the $37,000 mark in the last 24 hours after dipping below $34,400 briefly earlier Thursday.
On the other hand, gold, in contrast to bitcoin, is trading at its highest levels in over a year. The precious metal, often touted as a safe-haven asset at times of crisis and war, is up 1.4% on the week and has already touched a spot price high at $1,974 an ounce Thursday.
Bitcoin has shown itself better at protecting against inflation expectations and less suited to protect against geopolitical risk, something that gold has proven, again, to be better suited for during this crisis. With geopolitical forces top of everyone’s mind, today we see a risk-off sentiment and a flight to gold, Swiss francs and yen.
The safe-haven assets are bid, while in high-risk assets like crypto we will see continued downward pressure as risk-off continues. As the West starts to announce sanctions, energy products are expected to remain very strong. This could start to cause a decoupling between bitcoin and equity markets and eventually result in bitcoin rising significantly over the next two to three months.
The catalyst for this will be the acceptance that inflationary pressures are likely to continue rising in the medium term, causing continued cost-of-living increases and continued strains on Western government finances as oil prices exceeded $100 a barrel for the first time since July 2014.
Equally, given Russia’s importance to the energy sector, it is no surprise to see gas and oil trading at hugely elevated levels.
