Crypto overtakes gold as ‘safe haven asset’ amid Ukraine crisis

But while the decentralised nature of crypto has led to an increase in Russian citizens buying into the currency – as well as donations to Ukraine totalling $52m at time of writing – investment professionals warn that investors must tread carefully.

The GNY BTC Range Report, released last Wednesday (2 March), said: “War in Ukraine and the shock to the global financial system coupled with speculation about fewer rate rises this year and the potential increased use of cryptocurrency in the light of a rapidly devaluing rouble has sent bitcoin prices soaring and prompted claims it could hit $50,000 by the end of March.

“However, GNY’s BTC Range Report suggests 1 to 7 March will see a fairly consistent high range for bitcoin but fairly deep and sudden downward shifts to the mid-30,000s during the course of the week.”

George Monaghan, thematic analyst at GlobalData, said Russians buying crypto “represents a use case of the sort crypto was intended for,” given it is less vulnerable to government regulations than fiat currencies. 

“Sanctions have excluded some Russian banks from SWIFT and Mastercard and VISA have frozen their operations in Russia, but it seems that Russians can still make crypto transactions,” he explained. “The Russian government has refused to open the Moscow stock exchange, but it seems Russians can still trade crypto assets.”

While Monaghan does not believe the Russian government will be able to move all its operations into crypto and “continue as normal”, citizens may be able to preserve some of their money. 

“However, decentralisation will not endear crypto to Western investors when it is enabling Russia to bypass sanctions,” he pointed out. “Calls for regulation will emphasise this example. 

“Russians are not buying crypto because it looks promising – it is due to it appearing more stable than the rouble.”

Marcus Sotiriou, analyst at GlobalBlock, agreed that bitcoin’s rally is partially due to the coin’s ability to transfer value without permissions. However, he has added it is “fascinating” that, after a week of geopolitical uncertainty, bitcoin is outperforming ‘safe haven’ asset gold. 

“After the US Treasury Department claimed that it was limiting Russia’s ability to use their $630bn in foreign reserves, many have talked about the potential for Russia to evade these sanctions by using cryptocurrency,” he said. 

“I am sceptical about the feasibility of this though. Despite Iran and North Korea having used cryptocurrencies to get around US sanctions, Russia’s case is unique. This is because there is not enough global liquidity to support the $50bn in foreign exchange transaction volume that Russia settles daily.”

On balance, however, Sotiriou believes the crypto donations sent to Ukraine have been “positive overall” for bitcoin’s image. 

“The negatives being discussed are clearly outweighed by the power of crypto to act as a solution,” he explained. 

“Bitcoin is like a knife to a surgeon or a knife to a criminal. Like any valuable technology throughout time, its value comes from the intention behind its use.”