The Russian-Ukrainian war caused the collapse of Bitcoin. What risks does Bitcoin avoid?

The Russo-Ukrainian war arrived as expected.

In the early morning of February 24, Russian President Vladimir Putin delivered a speech, deciding to launch a special military operation in the Donbas region and initiate the Russo-Ukrainian war.

As Russia began its military operations in Ukraine, the price of Bitcoin fell below $35,000 for the first time since July 2021, a drop of more than 7%.

On the other hand, risk aversion sentiment intensified, with spot gold rising to around 1,950. Global oil prices, Brent crude futures, rose by more than 4.5%, breaking through $100 a barrel for the first time since 2014.

Many people ask, isn’t Bitcoin known as electronic gold? Isn’t Bitcoin a safe-haven asset? Why is it that its performance is completely opposite to that of gold during geopolitical crises?

It is a paradox to say that Bitcoin is a safe-haven asset because it is a highly volatile risk asset.

Comparison of volatility between Bitcoin and other assets (oil, gold, US stocks, US real estate, etc.)

A good safe-haven asset must have two characteristics: scarce high-quality assets and low volatility. Of course, the premise is world peace or small-scale turmoil. If there is a war or major turmoil, the high-quality assets are food, medicine and water, which are better than gold, Bitcoin and other assets. For example, when the COVID-19 outbreak just started, masks and their raw materials were high-quality assets.

According to the characteristics of Bitcoin itself, the advantages of fixed monetary policy, cross-border, mathematical rather than artificial rules, trustlessness, peer-to-peer, and electronic portability undoubtedly have a solid value foundation. In terms of scarcity, after the third halving in May 2020, Bitcoin has become an asset second only to gold in scarcity. Bitcoin's inflation rate of 1.8% is actually lower than the actual inflation rate in the United States.

If more people recognize the characteristics of Bitcoin, that is, if the consensus is large enough, Bitcoin will obviously be a very high-quality asset and volatility will be reduced. In the case of controllable inflation or controllable crisis, Bitcoin's safe-haven properties will become stronger and stronger compared to other assets.

But for countries experiencing hyperinflation or serious crises such as war, the more important and popular assets should be means of production and daily necessities (food, medicine, water). The value of Bitcoin and gold is not as high as that of means of production and daily necessities. In a crisis, people will sell their coins to survive.

Bitcoin hedges against currency crises in certain countries, and these are crises that are within a controllable range, so the safe-haven properties of Bitcoin can be revealed.