- After surging as much as 20%, to close in on US$45,000, Bitcoin has since retraced to US$38,400 at the time of writing, close to its lowest level since the end of February.
- Cryptocurrencies aren’t particularly liquid markets when compared against other traditional assets, and it’s not uncommon for small (by typical standards) purchases or sales to result in outsized swings in price.
Last week, as Russia was ejected from the global financial system, with Russian banks denied access to the SWIFT messaging system integral for cross-border banking transfers, ordinary Russians and Ukrainians poured into cryptocurrencies like Bitcoin and Ether, sending their prices soaring even as other risk asset plummeted.
But after surging as much as 20%, to close in on US$45,000, Bitcoin has since retraced to US$38,400 at the time of writing, close to its lowest level since the end of February.
Born in the wake of the 2008 Financial Crisis, Bitcoin was envisioned as an alternative to the traditional monetary system, immune to the debasement of fiat currencies and censor-proof.
Since that time though, Bitcoin has faced competing narratives, with some declaring that it is a highly speculative risk asset, whereas others believe that it has the potential to unseat gold as a haven and store of value, free from governmental control.
Those conflicting narratives have played out over the past week as Bitcoin’s rally in opposition to stocks which it has had a high correlation with, suggested to many investors that the cryptocurrency’s time to prove itself has come.
Yet by the end of the week, Bitcoin had settled more or less how it started the week, as shells rained down on a Ukrainian nuclear power plant (the biggest in Europe) saw a retreat from risk-taking that didn’t spare Bitcoin and the rest of the cryptocurrency market.
To be fair, most of the large price swings that the cryptocurrency markets are witnessing at the moment are on the back of far lower volumes – the majority of Bitcoin is seldom (if ever) traded, with many investors holding for the very long term.
Cryptocurrencies aren’t particularly liquid markets when compared against other traditional assets, and it’s not uncommon for small (by typical standards) purchases or sales to result in outsized swings in price.
It’s also important to note that cryptocurrency markets are plied by bots, automated trading programs that respond to the 24/7 markets and may be pre-programed to sell and buy based on momentum and price action.
What longer-term investors will need to pay more attention to is that the past week demonstrated that there remains a significant portion of the global population (not just Russian) that may see the value in holding an alternative currency that they can just take with them if they need to.
Even Ukrainians fleeing the conflict in their home country will want to have cryptocurrency because there’s no guarantee that their local banking system will remain intact to remit their money to offshore banks after suffering from Russian bombardment.
And that recognition played out as the Ukrainian hryvnia was one of the top few trading pairs with Bitcoin, second only to the Russian ruble, over the past week.
