Bitcoin price ‘thrives in conflict’ as regional wars escalate

As someone who has closely followed the cryptocurrency market for several years now, I can confidently say that Bitcoin and other digital assets have proven to be quite resilient in the face of geopolitical tensions. However, my personal experience and observations suggest that their performance can vary greatly depending on the nature and scope of these conflicts.

Over the past decade, international political conflicts have intensified significantly, affecting financial markets such as stocks and bonds, as well as digital currencies like Bitcoin. However, it appears that Bitcoin could serve as a protective asset during times of turmoil or conflict.

It seems the Israel-Gaza conflict may prolong, given that Israeli Prime Minister Benjamin Netanyahu replaced his political opponent and critic, Yoav Gallant, from his position as Defense Minister. Additionally, the truce with Hezbollah has eased tensions for Israel’s military actions in Gaza.

In Ukraine, troops and military equipment from North Korea are now present, while Russia has successfully test-fired a ballistic missile that can carry several nuclear warheads over long distances for the first time.

Additionally, the win of Donald Trump as the U.S. President could potentially limit Ukraine’s access to American weapons and vehicles, leading to a greater involvement from Europe in these matters.

Is it possible that as two conflicts continue to intensify, both locally and globally, causing tension with potential major consequences, financial markets might experience substantial declines due to increased risk aversion? Could Bitcoin (BTC) also be affected by such sell-offs?

‘Bitcoin thrives in conflict’

The value of Bitcoin tends to be strongly influenced by the overall mood or perception of the market. For instance, a significant global conflict can cause an instant, typically unfavorable impact, as seen when Iran carried out an unexpected direct assault against Israel in April 2024.

On April 13, the price of Bitcoin dropped by 8.4% following the strike, which was a response to the Israeli attacks on the Iranian embassy in Damascus.

During times of geopolitical turmoil, the value of Bitcoin might experience dips, but looking at past events, the impact can differ significantly based on the specific timeline considered.

According to Andre Dragosch, leader of research at Bitwise’s ETP platform ETC Group, it has been observed that the value of Bitcoin tends to decrease temporarily when geopolitical tensions or conflicts occur. However, within about 50 days, its price usually bounces back and even exceeds its previous level, demonstrating Bitcoin’s ability to withstand such events, underscoring its resilience.

As I delve into the fascinating world of cryptocurrencies, I find myself reflecting on Bitcoin’s unique characteristics. While its volatility has been trending downward since inception, it remains notably high compared to traditional assets such as equities. This inherent instability continues to label Bitcoin as a generally risky investment option.

In periods of elevated doubt, such as those triggered by heightened geopolitical threats, it’s common for riskier investments to be offloaded in favor of more secure or stable assets, like gold or U.S. Treasury bonds, according to Dragosch. He explained that this is one explanation behind Bitcoin’s short-term vulnerability during geopolitical events.

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In the early phases of a worldwide conflict, individuals like Mithil Thakore, co-founder and CEO of Velar (a Bitcoin L2 liquidity protocol based in Dubai), explained to CryptoMoon that cryptocurrencies are often perceived as less relevant compared to critical issues such as saving lives, securing food supplies, managing logistics, ensuring the functioning of supply lines, and preventing regional disputes from escalating into a global conflict.

“In the short-term, if full-scale war kicks off in the Middle East overnight, every crypto asset, including Bitcoin, will be in the red.”

Thakore stated that after the initial surprise subsides, it’s likely that Bitcoin will surge within just a few days. He suggested that those who can resist the temptation to quickly sell during the first two days following a significant worldwide conflict will be richly compensated for their faith.

He added: “Over the longer term, geopolitical conflicts raise the prospects of higher inflation rates globally due to factors like increased fiscal spending, looser monetary policy, supply-chain disruptions, and commodity price spikes, which should all benefit Bitcoin.”

According to Dragosch’s perspective, his ideas mirror those of macroeconomist and finance expert Lyn Alden, who postulated a theory stating that Bitcoin serves as an indicator of global liquidity levels.

As a researcher, I propose a perspective that posits the fluctuations of Bitcoin‘s value are predominantly shaped by global liquidity conditions, rather than attributing them solely to internal factors such as adoption rates or technological advancements.

Dragosch pointed out that scarce resources often benefit when there’s higher inflation due to expansive monetary policies because ‘there’s more money competing for fewer available goods,'” is a natural and easy-to-read paraphrase of the original statement.

Thakore concurred, stating, “There is substantial proof that Bitcoin flourishes in environments rich with liquidity.” He further noted that Bitcoin’s growth during times of aggressive monetary expansion might not be entirely due to increased liquidity but also “as a safe haven for those who perceive the error in significant devaluation of major fiat currencies.

Thakore suggested, “Although it’s unlikely we’ll witness a full-scale conflict to prove this theory, there’s a valid argument to make that Bitcoin flourishes during times of unrest.

To put it simply, while Bitcoin is robust, it isn’t indestructible. There are certain geopolitical changes that can cause it to falter, showing its vulnerability.

Bitcoin’s vulnerability

Geopolitical conflicts can differ greatly in their extent and effects, offering distinct hurdles. While Bitcoin tends to prosper amid geopolitical turbulence, scholars from a 2024 study titled “Crypto Market Relationships with BRIC Countries’ Uncertainty” offer a more restrained viewpoint. They issue a word of caution that Bitcoin’s robustness might weaken significantly in the event of an all-out war.

José Almeida, an educator at Lisbon School of Economics and Management (ISEG) and a researcher from CSG/ADVANCE Research Centre, explained to CryptoMoon that investor actions can vary significantly based on whether the event is widespread, such as the COVID-19 pandemic, or more confined, like the Russian invasion of Ukraine.

“Localized geopolitical risks, such as the Russian invasion of Ukraine, tend to ‘encourage’ crypto investment.”

In certain situations, investors might see cryptocurrencies as a means to transfer wealth from troubled areas, dodge sanctions, or protect the worth of their savings when local currencies lose value, according to Almeida.

“Bitcoin and certain altcoins act as a hedge against the specific risks posed by geopolitical tensions, providing an alternative for those seeking to protect their wealth from regional disruptions.”

According to Almeida’s explanation, the study’s findings indicate a trend where during periods of economic stability, cryptocurrencies seem to gain appeal as geopolitical incidents occur locally.

Conversely, worldwide emergencies such as COVID-19 have fostered a sense of widespread uncertainty, causing investors to shy away from investing in riskier assets like cryptocurrencies.

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As a crypto investor, the global pandemic has brought about an overwhelming sense of uncertainty that’s affected every market. This uncertainty has led numerous fellow investors to view cryptocurrencies as excessively volatile, causing them to either hoard cash or opt for more traditional and seemingly safer assets.

As a researcher studying economic trends, I ponder on the potential implications of a regional armed conflict escalating into a global scale. In such uncertain times, investor fear could potentially surge, which might negatively affect Bitcoin’s performance, as its value may be influenced by market sentiments and confidence levels.

Tiago Cruz Gonçalves, an associate professor at IESG, explained to CryptoMoon that during regional conflicts like the Israel-Iran or Ukraine-Russia situations, investments in cryptocurrencies might increase as a means of protecting against local instability. However, in broader, worldwide crises, cryptocurrencies could be perceived as too risky.

2024-11-29 17:43

‘Bitcoin thrives in conflict’

Bitcoin’s vulnerability

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