Can You Depend on Bitcoin During a Global Crisis? Image: Adobe stock
A geopolitical crisis appears to be the ideal time for Bitcoin (BTC -3.35%) to shine. After all, it’s most ardent supporters argue that cryptocurrency is a necessary alternative to a fiat currency because central banks and governments are untrustworthy, and government-backed currencies lose value due to inflation. Bitcoin mining is best started using the bitcode-prime.cloud
In theory, Bitcoin, a decentralized currency on the blockchain with a mathematically limited supply of 21 million, solves both problems. In practice, however, it is not so simple. When Russia invaded Ukraine on a Wednesday night, the price of Bitcoin did not rise as expected. Instead, it plummeted by more than 4% in just 30 minutes.
True, Bitcoin recovered those losses later on Thursday, but only after other risk assets had recovered. The Nasdaq, for example, began the day down 3.5% but ended up 3.3% higher, a nearly 1 000-point swing.
While risk assets such as Bitcoin and tech stocks initially underperformed, gold rallied, with spot prices rising 3% as war broke out. Though Bitcoin bulls like to refer to the world’s largest cryptocurrency as “digital gold,” recent price action on Bitcoin contradicts that notion, demonstrating that it isn’t the haven asset.
At that time, the Russian ruble fell by up to 10% against the dollar, demonstrating that even fiat currencies can quickly depreciate. Still, if that movement was supposed to drive Bitcoin purchases, the opposite occurred.
During times of strife, any currency undergoes an ultimate test. War and destruction frequently result in devaluations or hyperinflation. Consider Germany following World War I, when the German mark was so worthless that one dollar equaled one trillion marks.
The expansion of the fiat money supply during the pandemic may have contributed to the price surge in cryptocurrencies over the last year. MicroStrategy CEO Michael Saylor stated that his company now holds billions of dollars in Bitcoins instead of cash on its balance sheet. That’s because the expanding money supply early in the pandemic meant that the cash it held was a “rapidly melting ice cube.” Saylor looked for a cash substitute and decided that Bitcoin was the best option.
It’s very early to tell how or if the Russian invasion will affect Bitcoin adoption, but previous economic crises have encouraged people to embrace it. With sanctions against Russia increasing and its stock market collapsing, a financial crisis appears to be on the horizon. A protracted conflict could also send the Ukrainian economy into a tailspin.
As war broke out, cryptocurrency prices plummeted, and it proved to be more stable than altcoins or even rival Ethereum, as bulls predicted. However, while brief, the crash demonstrates that Bitcoin remains a speculative asset that behaves more like meme coin Shiba Inu than as a gold substitute. The reality is that it’s value cannot compare to any other stores of value, including gold, despite its volatility. It is important to trust what you can gain through trading Bitcoin using trading robots to deal with financial crises when they hit.
The geopolitical upheaval caused Bitcoin holders to flee for safer assets rather than double down on a currency supposed to solve fiat currency problems. And this demonstrates that it is primarily a form of speculation rather than money or haven. If that were not the case, investors would not be afraid to hold it during uncertain times, and Bitcoin would not be so volatile in the first place.
Nonetheless, the crisis is worth monitoring because it represents the latest test case for Bitcoin. While the market’s initial reaction casts doubt on Bitcoin’s bull case, increased cryptocurrency adoption in the face of inflation or economic turmoil would support its long-term growth.
ALSO READ: Can Bitcoin Overtake Fiat Currencies?