The situation between Russia and Ukraine continues to heat up: how it will affect the cryptocurrency market

The situation between Russia and Ukraine continues to escalate, affecting the market.

As part of the entire financial market, cryptocurrencies are inevitably affected. Next, let’s look at how the Russia-Ukraine conflict will affect the cryptocurrency market.

Cryptocurrency prices see a reversal day

Global stock markets and cryptocurrencies experienced Black Thursday as Russian President Vladimir Putin decided to launch a military operation in eastern Ukraine.

On February 24, according to Coingecko data, BTC fell to a low of $34,740 per coin, the first time it has fallen below $35,000 since July 2021. The prices of other cryptocurrencies also generally fell. The overall market value of cryptocurrencies has shrunk significantly.

However, this situation was reversed on the 25th. In the last 24 hours, Bitcoin rose by more than 10%, breaking through $39,000. ETH rose by more than 12% in 24 hours, reaching $2,629.

As tensions between Russia and Ukraine rise, the price of USDT on Ukrainian cryptocurrency exchange Kuna has risen by nearly 5%.

Also worth noting is that according to Coingecko data, as of Friday, trading volume on the Ukrainian crypto exchange Kuna has more than tripled. On Thursday morning, Kuna's 24-hour trading volume was about $1.5 million, and is currently just under $5 million. Bitcoin is currently trading at a 7% premium on Ukrainian exchanges, indicating that local demand has exceeded available supply since the attack. As of about 12:30 this morning, Bitcoin was trading at $41,554 on the Ukrainian exchange, $2,821 higher than the global price of $38,733.

Not long ago, the Ukrainian parliament passed a law legalizing cryptocurrencies.

“Digital Gold” Questioned

Previously, many investors viewed Bitcoin as a safe-haven asset, using it as a hedge against global economic uncertainty and price increases. During the Russia-Ukraine conflict, Bitcoin's sharp drop also called into question its title of "digital gold."

Buffett is against exchanging stocks for cash, gold, and Bitcoin during wartime because he believes investing in companies is one of the easiest ways to build wealth over time.

Frank Holmes, CEO of US Global Investors, believes that gold is the best asset to use in this highly tense environment. In an interview with Kitco News, Holmes said that gold has a historical basis as a safe haven asset during times of war and political tension. He pointed out that the market should not use gold's poor performance in 2021 as a reason to avoid the asset. Holmes admitted that although Bitcoin is becoming an important alternative, it will take more time for the asset to prove its worth considering that it is still a "young" asset class. However, Holmes believes that once Bitcoin overcomes several obstacles such as regulation, it will replace gold as a safe haven for people.

Ki Young Ju, CEO of crypto market analysis firm CryptoQuant, believes that as long as institutions like MicroStrategy continue to hold Bitcoin, the asset’s “digital gold” narrative will continue to apply.

Bitcoin hashrate remains stable

According to data from btc123.fans, the current Bitcoin network hashrate is 195.38 EH/s, and has only dropped by 1.77% in the last 24 hours, with the hashrate remaining stable. Previous data showed that as of August last year, Russia had nearly 13.6% of the Bitcoin network’s hashrate.

In addition, according to Bitnodes data, there are 165 nodes working across Russia and 46 nodes are still running in Ukraine.

Chip crisis

Under the epidemic, the chip semiconductor supply chain is already fragile, and under the conflict between Russia and Ukraine, the situation is likely to be made worse.

Neon is one of the indispensable raw materials for the light source of most mainstream lithography machines. Ukraine is the world's largest exporter of neon, and its exports account for about 70% of the global market. Faced with the risk of supply disruption, Samsung, SK Hynix, Intel and other manufacturers have stated that their chip production has not been affected for the time being, thanks to the diversified sources of materials. TSMC, the world's largest chip foundry, declined to comment "at this time". ASML, a key Dutch supplier of chip manufacturers such as TSMC, Samsung Electronics, and Intel, has stated that it is looking for a "spare tire".

However, most analysts believe that the impact of the Russia-Ukraine situation on chip production will be felt in the long term. As the demand for semiconductors increases, the global demand for semiconductor materials may continue to rise in the next few years. For the semiconductor industry, which relies on cooperation among countries around the world, conflicts anywhere are tantamount to affecting the entire system, and similar supply crises will probably continue to occur in the future.

Among these companies, Intel is developing Asic Bitcoin mining machines. Previously, mining machine manufacturers Bitmain and Shenma have formed strategic cooperation with TSMC and Samsung respectively. This also means that the potential chip crisis is bound to affect the research and development and production of mining machines.

Actions from all sides: Bitcoin aid, DAO, and mining restrictions all in action

Cryptocurrency also represents a force in the Russia-Ukraine conflict.

On February 25, SBF, CEO of crypto trading platform FTX, said on social media that he had issued $25 to Ukrainian users of the FTX platform. The day before, SBF said that no one can predict the future, but we can do something good for the world.

After more than a decade of development, cryptocurrency donations have become more and more of a trend.

According to Blockchain.com, a Bitcoin wallet listed by a charity claiming to support the Ukrainian military has received more than 109 Bitcoins, worth about $4.195 million. The organization raising funds is called "Come Back Alive", and the address currently has 105 BTC, equivalent to about $4.039 million. The data shows that the relevant address has been active since at least August 2021, but the vast majority occurred in February, many of which occurred in the past 48 hours.

2021 has been a breakthrough year for decentralized autonomous organizations (DAOs), which have gone from a crypto term to mainstream consciousness, with a surge in the number of DAOs of all shapes and sizes and the amount of money raised. Now DAOs are also representing one side in the Russia-Ukraine conflict.

Nadezhda Tolokonnikova, a political activist and founding member of the punk rock band Pussy Riot, announced the launch of Ukraine DAO with Trippy Labs and members of PleasrDAO. Pussy Riot tweeted, "Our goal is to raise funds to donate to Ukrainian civil organizations to help those suffering from Putin's war in Ukraine. We will buy an NFT with the Ukrainian flag." According to Tolokonnikova, this Drop will include 10,000 Ukrainian flag NFTs minted on Ethereum, and all proceeds will be donated to the Return Alive Foundation and the NGO Proliska. In addition, a unique flag NFT will be released to allow larger contributors to participate.

It is also worth noting that after Ethereum co-founder Vitalik Buterin publicly supported Ukraine in the recent Ukrainian military action, the Ethereum community also responded. It is reported that FlexPool has announced that it will prevent people from Russian IPs from participating in ETH mining and "apologize to Russian ETH miners" for this move. Currently, FlexPool has more than 5% of the Ethereum network computing power, ranking fourth among all ETH mining pools.

The EU’s interest in cryptocurrencies did not stop during the war.

On February 24, European Union (EU) lawmakers are preparing for an inter-institutional discussion on proposed regulations to govern crypto assets, and may ban energy-intensive cryptocurrencies such as Bitcoin. According to a draft, the Crypto Asset Market (MiCA) regulatory package to be discussed includes a clause that may restrict the use of a consensus mechanism called proof of work (PoW) in the union's 27 member states.