War, Crisis, and Crypto: How Global Turmoil Impacts Digital Asset Prices

There’s no denying that cryptocurrencies have made digital transactions easier and safer. In fact, many now prefer to use cryptos over other alternatives to make purchases online or transfer and store funds. As lifestyles become more and more internet-oriented, cryptos are becoming increasingly mainstream as a mode of transaction. 

Sports betting has been one of the early adopters of cryptocurrency, with many sportsbooks now offering crypto as a payment option. Sportsbooks that offer crypto provide greater flexibility for bettors, along with faster transactions compared to traditional methods.

Cryptocurrency is also becoming popular in the gaming and entertainment industry. Some OTT platforms are now accepting payments in crypto. Sling TV, for example, allows users to pay for their content via cryptos. Many developers also accept cryptos as a mode of payment for their in-game content. 

While cryptos have not completely replaced fiat currencies yet, they have come a long way as an alternative form of monetary value. So, how do they react when a massive economic shock like a war or a pandemic breaks out?  

The crypto market took a big hit when the US decided to join Israel’s war against Iran. What does this tell us? Thankfully, we have some big case studies to refer to.

Cryptos and COVID-19 

Chaos hit the global economy when the pandemic forced countries to restrict economic activities. Crypto was not immune from all the uncertainty going around, as all major coins plunged. However, a surprising rebound was just around the corner.

Bitcoin, for example, fell in value until May, but the prices stabilized afterward. For five months, exchanges traded Bitcoin for around $10,000. 

After mid-October, it surged significantly. It’s no exaggeration to say that Bitcoin and other popular cryptos thrived during the pandemic. Bitcoin outshone traditional markets and even the ever-reliable gold.

Major investors held their assets while retail traders pulled out in fear in the first few months, which led to a slump in the market. 

But the tide turned in mid-October as institutional buyers began to pour in. As a result, Bitcoin prices soared past $40,000. They briefly fell to $35,000 before crossing the $50,000 mark. 

A number of large corporations, including PayPal, revealed plans to authorize cryptocurrency for transactions. Another reason for crypto’s resurgence is that it became trusted as a safeguard against inflation, much like gold. 

In times of crisis, when borders close and markets falter, crypto stays open. With the ability to trade across borders, people can keep trading even if local governments clamp down on financial activity. That kind of flexibility makes crypto stand out from more traditional options.

It also offers a safe haven for those worried that central banks or political decisions might shake up the markets. With no one entity in control, the crypto space gives investors more freedom and fewer surprises.

How the Ukraine War Affected Cryptocurrencies 

Russia and Ukraine have been at war since February 2022, and the impact has been felt across the global economy. The crypto sector was no exception.

By March 2023, over $212 million had poured into Ukraine in the form of cryptocurrency donations, according to the World Economic Forum. According to Ukrainian sources, that money has been used to support the military with essentials like bulletproof vests, helmets, drones, and demining equipment.

Other contributions have gone toward medical supplies and communication equipment like radios. 

We also get to see a similar pattern in cryptocurrency prices during the Ukraine conflict. In the immediate aftermath of Russian attacks, we saw prices fall. Reuters reported that the price of cryptocurrency fell as much as 7.4% on February 24, 2022; the day Russia launched their invasion of Ukraine. 

The remarkable recovery Bitcoin and other cryptos had afterward is well documented, however. Bitcoin reached well above the $110k mark earlier this year. While the Iran conflict brought prices down, it is expected to be only a temporary shock, just as the ones we have seen before. 

The Key Takeaways 

Despite their increasing usefulness, most investors still view crypto as a risky asset. Investors typically look for safer options and pull back from riskier assets during a war or pandemic. So, many investors sell off their crypto and move their money into safer bets like cash, gold, or government bonds, which leads to a drop in crypto prices.

Also, people and institutions often need quick access to cash to manage unexpected costs, which leads to massive sales of crypto assets. 

But as the Ukraine war showed, these trends are slowly shifting. People turned to crypto as a safer mode of transaction during the conflict. So, the market reaction should be far less severe in coming years as crypto becomes more expensive. 

Once some sense of normalcy sets in, crypto prices tend to stabilize. Investors overcome the initial shock and commit cryptos. Once the risk aversion and liquidity needs are met, crypto market returns to business as usual.