Bitcoin Falls Below $40K As Uncertainty Escalates

Bitcoin tumbled more than 5% during trading on Friday, pushing it down to just under $40K. This comes after gains made for a short period following Russia's military invasion of Ukraine, amid expectations that it will continue its downward trend to around $38,000.

Uncertainty about the overall factors of the crypto market appears to be increasing with the contribution of the conflict between Russia and Ukraine, adding to selling pressure for bitcoin and other digital currencies. 4% during trading on Friday.

Bitcoin has seen significant gains in the past week, jumping above the $43,000 level, with continued uncertainty in financial markets as Russia presses down on its attacks in Ukraine, which seemed to have surprised many.

Bitcoin, which has been moving in close association with risky stocks, broke away from the US S&P 500 on Monday (Feb 28) and jumped by 18%, the recent rally in the crypto markets has come as somewhat of a shock to most market participants, what It happened?

Russians are buying bitcoin

After the United Kingdom, members of the European Union, the United States and other countries imposed financial sanctions on Russia after its invasion of Ukraine, the ruble fell by 30% and purchases of ruble/bitcoin rose.

A market expert says that geopolitical instability highlights the inability of the current financial system to support the people most affected by such crises. Essentially, fiat currencies are currently experiencing significant fluctuations and loss in value, demonstrating the usefulness of decentralized and uncorrelated currencies. Governments or their political ambitions, and added that this is why we have seen a significant uptick in the Ruble and Ukrainian currency trading pairs over the past couple of days.

Many people lost access to traditional banking systems with the Russian invasion of Ukraine, so this sudden loss of access is likely to be a player in the Bitcoin and Ethereum price recovery, as both Russians and Ukrainians may switch to cryptocurrencies as their financial systems collapse.

When Russian President Vladimir Putin launched an invasion of Ukraine on Thursday (February 24), the cryptocurrency market was sold off, at the time, some crypto executives seemed to be dumbfounded by the market's reaction.

An analyst commented at the time of the sale Crypto That most people in the world still do not understand Bitcoin, then after it rose on Monday (February 28) some said is a week enough for the “market” to be understood.

Is the recent rally a sign of a shift from risky asset behavior to safe haven?

The largest crypto assets are now looking for a potential decoupling from risky assets and are doing so in an unprecedented time of uncertainty. Usually, holding cash is considered safer in times of crisis, but now high levels of inflation and broader macroeconomic problems make holding large sums of money safer in times of crisis. monetary risk per se.

Are we then seeing the beginnings of broader acceptance of Bitcoin as a hedge, not only for investors but also for ordinary citizens? We will certainly know the other side of this crisis, but we can already say that we are currently witnessing historic shifts in power that are occurring in real time and cryptocurrencies are at the heart of the raging storm. .

Changing interest rate hike expectations

As an asset class, cryptocurrency thrives in low interest rate environments and reacts nervously to any indications of rate hikes, the market has included expectations of a March rate hike by the US Federal Reserve, although the central bank may want more flexibility due to the conflict. In Ukraine, experts say.

Experts note that economic uncertainty means the Fed may hold off on raising interest rates in the short term, giving the market an extra boost.

The crisis involving Russia has led to a shift in macroeconomic expectations, previously market participants had been seeing that there would be several rate increases by the Federal Reserve and other central banks this year, and Morgan Stanley had forecast six rate increases. In the US just two weeks ago.

However, geopolitical uncertainty and the impact that sanctions could have on the energy sector (with Russia being one of the world's largest gas and oil exporters) dampened many of these forecasts, potentially causing inflation to continue to gradually rise.

With bitcoin and other cryptocurrencies both considered risky assets and an inflation hedge, this change in narrative is only beneficial to the industry.

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Mohamed Abdel Khaleq

Professional technical and economic analyst in global financial markets since 2004, holder of an MBA from the American University in Cairo. He works as an economic writer and technical analyst for many international financial companies. He writes daily economic and technical analyzes for many Arabic and English websites specialized in the field of stock exchanges and financial markets.

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