On 24 February 2022, the Russia vs Ukraine war started. Almost one week later, we continue to see history in the making. How will this war impact us as crypto traders? How will our lives be affected? Here’s what you need to know.
Impact On Crypto Market
The day the Ukraine-Russian crisis erupted, the crypto market plummeted. Bitcoin even dropped to $34,500 once, a nearly 10% decrease in one day. Although crypto investors refer to Bitcoin as “Digital Gold”, Bitcoin’s performance was inversely proportional to gold performance. One reason is that in the previous year, traditional institutions have invested in Bitcoin, but, among other asset classes, Bitcoin is still considered a high-risk asset instead of a safe-haven asset.
As more and more traditional institution players enter this market, crypto performance becomes positively correlated with DJIA and S&P 500 market indices. On 28th February, Bitcoin recovered back to $43,000, though there is still much selling pressure in the market. Bitcoin hashrate (a measure of Bitcoin mining profitability) seems to be affected by this conflict and BTC’s temporary price drop as well; during this period, Bitcoin hashrate dropped around 30%.
In The Long Term
This war has shown that crypto can and does play a role in the current financial system. Internet and e-commerce giants like eBay are also exploring the possibility for crypto payments. Meanwhile, inflation rates are set to rise with this conflict. Widely perceived as the asset to hedge against inflation, Bitcoin could become investors' preferred asset. Thus, in the long run, Bitcoin and other crypto are still in a positive trend with increasing exposure in traditional industries.
Impact On Everyday Life
Put simply, war in Ukraine threatens the global economy, especially when it has yet to fully recover from the pandemic.
Rising electricity and gas costs
The Russian-Ukraine war has caused Brent oil prices, recognized as a global pricing benchmark, to jump above $100 a barrel - its highest since 2014. Natural gas prices have also spiked. Crude oil and natural gas are raw materials used to make petroleum products like gasoline (petrol) and diesel and to generate electricity and heating.
Russia’s main exports include crude oil and natural gas. In fact, Russia exports 10% of global oil and supplies 40% of Europe’s gas. With war, production will be affected, causing increased demand but reduced supply, driving prices up. Hence, you should be prepared to pay more for gasoline (petrol) and electricity.
Increase in food prices
Ukraine and Russia are among the top five global exporters of major grains (wheat, corn etc) and vegetable oils, which are used to make many other food products like bread and pasta. Ukraine herself supplies about 50% of global sunflower seed oil. Military operations in the region will impact their ability to move crops within and beyond their borders, especially if Ukraine’s ports and railroads are damaged.
Similar to oil and gas, the war will likewise cause a supply-demand issue and drive food prices up, amid an already high inflation environment. Even if you are not physically located near Ukraine or Russia, don’t be surprised if the price of food staples like bread and grains go up soon.
Inflationary pressures are rising
The rising costs of energy and food, coupled with ongoing disruptions to global supply chains, is sure to fuel a sharper rise in inflation.
Whether in the West or the East, countries who depend on Ukrainian or Russian exports in some way will feel the pinch. This will trickle down to consumers, who may find additional squeeze on household incomes and rising costs of living.
What’s Next For Crypto Traders?
This is crypto’s first major geopolitical crisis, and no one knows how things are going to play out. One thing’s for sure, markets may continue to be volatile based on developments in the war and investor confidence. However, crypto traders may be better able to think long-term and stay invested in assets of value that they believe in. Those who have the financial means and risk appetite may also choose to “buy the dip”.
In terms of real-world effects, traders should be prepared to expect higher pump prices, electricity bills and food expenditure.
The views expressed in this article are the author's alone and do not necessarily represent the views of ApolloX.
Risk Reminder: Crypto trading carries a risk. All trading activities are done at your discretion and at your own risk. The information here should not be regarded as financial or investment advice from ApolloX. ApolloX will not be liable for any loss that might arise from your use of any financial product.
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