Crypto World Hopes For Digital Gold Status Evaporate As More Speculators Head For The Exit After Ukraine Shock


Crypto World Hopes For Digital Gold Status Evaporate As More Speculators Head For The Exit After Ukraine Shock. Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, believes that the crypto world has suffered a heavy blow after Russia has started military operations in Ukraine.

Digital Gold Status

Crypto World Hopes For Digital Gold Status Evaporate As More Speculators Head For The Exit After Ukraine Shock

Crypto World Hopes For Digital Gold Status Evaporate As More Speculators Head For The Exit After Ukraine Shock

“The crypto world’s hopes for assets like Bitcoin to achieve digital gold status have evaporated as speculators have headed for the exit as the crisis in Ukraine has deepened. Because of its fixed supply Bitcoin had been hyped as a potential safe haven in times of higher inflation and market volatility, but instead has swung wildly down as equity market sell-offs have intensified. Crypto assets have been shown to be highly sensitive to the fortunes of the stock market and were propelled higher in an era of ultra-cheap money,” the leader believes.

As the conflict in Ukraine looks set to be yet another inflationary driver with oil spiking again, up 8% at $104 a barrel there is fresh speculation that central banks could be forced into more unexpected monetary policy moves, with an acceleration of rate hikes potentially on the cards. With huge uncertainty around how deep the Ukraine conflict could go and what ripple effects there could be in financial markets, crypto assets are likely to continue to be highly volatile.

“By contrast gold has come to the fore again as a traditional safe haven, rising by 1.5% to $1937 an ounce just as Bitcoin fell again by almost 3%, to $35,700. It’s now down by a quarter since the start of the year. The recent falls may drive more crypto fans into the market in expectation of a steep recovery to come. But as we’ve seen with its rollercoaster ride so far, it’s unlikely to stay there for long,” she continues.

“If there are fresh price spikes in 2022 it’s likely to concentrate minds further amongst central bankers and regulators as surges in crypto prices often see more retail speculators entering the market hoping to catch a ride upwards. Regulators are still intensely worried about vulnerable consumers getting caught out, particularly when far too many are not financially resilient with a cost of living crisis looming in many parts of the world,” Susannah Streeter says.

Harsher Sanctions, Heavy Blow on The Economy

Germany is among the European countries highly reliant on Russian supplies and lacks the infrastructure to immediately wean itself off dependence. The conundrum of trying to hit Russia hard with sanctions that could ricochet back and harm Western economies isn’t going to go away any time soon. Russia has built up hefty foreign exchange reserves, totalling almost $640 billion in its central bank, which will help insulate the country from economic shocks.

“Central Banks will be navigating these conflicting tides as they decide how fast and how steeply rates should be raised to try and cool down hot consumer prices. With higher oil and gas prices such inflationary drivers, the turn of events is unlikely to deter them from the immediate policy signalled of fresh hikes. However, if fuel soars further and starts to hurt businesses and the wider economy, policymakers may be tempted to soften their approach later this year. If a full-blown conflict breaks out, there is also likely to be significant disruption to ship movements around the Black Sea. This could lead fuel higher food inflation given that Ukraine, Russia, Kazakhstan and Romania all ship grain from ports in the area. The extra pounds on bills are piling up for families, with the increase in fuel, energy and grocery bills set to hit lower-income households harder. With budgets being squeezed further the likely knock-on effect of a fresh rise in prices, caused by the escalating situation in Ukraine, would be a blow to consumer confidence, after lockdown savings are increasingly worn away.

For investors, it’s worth remembering that in times of increased nervousness, it’s even more crucial to have a diversified portfolio. There are already signs of bargain hunting among traders, keen to snap up shares sensitive to the situation but concentrating efforts on ensuring holdings represent a basket of different assets across varied geographies is likely to provide more resilience,’’ she concludes.