Bitcoin cratered on Thursday as geopolitical turmoil exposed the cryptocurrency as one that trades as a risk asset, as opposed to a safe haven.
Bitcoin was trading down by 3.8% at $36,120 on Thursday afternoon as the market reacted to the invasion of Ukraine by Russia.
Crypto enthusiasts had previously purported that Bitcoin could provide safe haven characteristics similar to gold. However, today’s move confirms that Bitcoin is more closely tied to the volatility of risk assets such as equities, than it is to safe havens like Gold and Bonds.
Indeed, today’s Bitcoin move tracked equities sharply lower suggesting the market views the asset as one that cannot relied upon for safety during times of volatility.
“The crypto world’s hopes for assets like Bitcoin to achieve digital gold status have evaporated as speculators have headed for the exit as the crisis in Ukraine has deepened,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“Because of its fixed supply Bitcoin had been hyped as a potential safe haven in times of higher inflation and market volatility, but instead has swung wildly down as equity market sell offs have intensified.”
Today’s move added to evidence Bitcoin was trading as a risk asset following the close correlation with technology shares in 2022. Technology shares have performed terribly in 2022 as the prospect of the higher interest rates made their high valuations look vulnerable.
This was also the case for Bitcoin.
“Crypto assets have been shown to be highly sensitive to the fortunes of the stock market and were propelled higher in an era of ultra cheap money,” said Streeter.
“As conflict in Ukraine looks set to be yet another inflationary driver with oil spiking again, up 8% at $104 a barrel there is fresh speculation that central banks could be forced into more unexpected monetary policy moves, with an acceleration of rate hikes potentially on the cards. With huge uncertainty around how deep the Ukraine conflict could go and what ripple effects there could be in financial markets, crypto assets are likely to continue to be highly volatile.”