Despite short-lived gains, some analysts expect a relief rally if war-related conditions ease.
Most cryptocurrencies traded lower on Friday, retracing gains made earlier in the week.
Speculative assets such as stocks, cryptos, and commodities have suffered strong price movements in the last month, indicating a high level of anxiety among investors.
Bitcoin (BTC) soared as much as 7% during the London trading day after Russian President Vladimir Putin stated there was “good development” in discussions. Despite this, price increases were short-lived as fighting between Russia and Ukraine escalated on Friday.
Regulators’ crackdowns on cryptocurrency have also contributed to traders’ pessimism. According to Reuters, numerous crypto businesses located in the United Arab Emirates (UAE) have received a deluge of demands from Russian clients to sell billions of dollars in digital assets.
In addition, the White House and the Group of Seven industrialized nations imposed further penalties on Russia on Friday and stated that guidelines on utilizing cryptocurrency to avoid sanctions will be provided soon.
“The near-term uncertainty will remain high until a long-term Ukraine cease-fire is reached. This is adverse for equities and credit, although circumstances have reached oversold levels “MRB Partners, an investment research firm, stated this week in a study. MRB anticipates a relief rally in stocks if the war-related situation improves.
Given the increased link between these two types of assets, Bitcoin may eventually follow a similar recovery path to equities.
Ethereum’s value declines relative to bitcoin
Ether (ETH), the world’s second-largest cryptocurrency by market value, is down 20% in the last 30 days, compared to a 12% loss in BTC during the same time period. The underperformance of ETH and numerous other alternative cryptocurrencies (altcoins) that are more volatile than BTC suggests that crypto investors have a lesser stomach for risk.
The ETH/BTC cross has continued to fall, now trading at 0.066. “We have seen an 8% decrease in the ETH/BTC cross since early February, which we frequently consider as a risk barometer for crypto assets more generally,” Coinbase Institutional stated in an email on Friday. “What it appears to be telling us is that risk appetite away from the asset class’s perceived safe havens’ (mostly BTC) is still fairly low.”
The chart below illustrates that the ETH/BTC price ratio is below its 40-week moving average, as it was during the 2018 crypto bad market.
- According to a Bloomberg article on Friday, Fir Tree Capital Management, a hedge fund with $4 billion in assets under management, has put a significant short bet on the stablecoin tether (USDT). According to the firm’s customers, the position was designed as an “asymmetric trade,” which means that the downside risk is low but the potential payout is high.
- Trading volume in altcoins has decreased: Trading activity on Coinbase has been focused on “safe haven” tokens such as BTC and ETH during the last week. “Further out the risk curve – even in better profile cryptocurrencies like SOL and ADA – demand has decreased down as they continue to seek sustainable support levels,” Coinbase noted in a research on Friday. The exchange also saw a reduction in trading activity in meme currencies such as SHIB, as well as low social media engagement.
- Terra’s LUNA cryptocurrency has gained 11% in the last week, beating several major cryptocurrencies in the midst of the Ukraine conflict. “LUNA has obtained double-digit positive returns for the third week in a row, causing investors to ask how durable this rise is,” Guillermo Avilés, an analyst at Messari, said in a Friday newsletter. LUNA is down 5% in the last 24 hours, signaling a lack of upward momentum.