How the Ukraine situation affects crypto

Plus, will it cause the Fed to not raise rates?

Inside.com Part of   Network February 24, 2022

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The following piece was written in the Inside Daily Brief by Analyst Dan Smith. I believe it's necessary to get a general breakdown of the Ukraine situation at large before understanding its connection to the cryptocurrency market in story 3. Russian troops invaded Ukraine last night. Explosions and clashes have been reported in several Ukrainian cities and regions as the Russian military continues its assault by land, air, and sea. NATO Secretary-General Jens Stoltenberg called the invasion a "brutal act of war."  More: The invasion began when Russian President Vladimir Putin announced that he had decided "to carry out a special military operation" in Ukraine. Explosions were heard in Kyiv, Ukraine's capital city, Kharkiv, the second-largest city in the country, and in the eastern Donetsk region. An advisor to Ukrainian President Volodymyr Zelensky said that over 40 Ukrainian soldiers had been killed since the invasion began last night. Ukraine's government said that it faces "a full-scale attack from multiple directions." Imprisoned Russian dissident Aleksi Navalny, one of Putin's most strident critics, took a moment during a court hearing to condemn the invasion: "The war with Ukraine has been unleashed to cover up the robbery of Russian citizens and divert their attention away from the country's internal problems, from the degradation of its economy." Zoom Out: NATO plans to host an emergency virtual summit on Friday to discuss the invasion. The alliance may deploy more troops and military equipment to Eastern Europe. NATO members are also preparing to introduce new economic sanctions against Russia. Russia may be removed from the SWIFT international payments system, a decision that would further isolate the country from the international financial system. Such a move would have major ramifications for the role of the U.S. Dollar as the global reserve currency, and it is unclear whether the United States and its allies will take this unprecedented step.

For a thorough breakdown of the Ukraine situation right now — history, chess pieces, strategy, and Putin's motivations — I recommend watching these two YouTube videos by Illustrate to Educate and Johnny Harris.

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The crypto total market capitalization has fallen to $1.5T as a result of Russia/Ukraine FUD. The impact of the actions are being felt throughout the global financial markets — the Stoxx 600 Europe index fell more than 3%, micro Nasdaq 100 futures are down 2.3%, the S&P Index fund is down nearly 1%, while Russia's MOEX equity index dropped a record 28%.  A few thoughts: The recent events in Canada and Russia have proven that Bitcoin has not yet acheived the status of "digital gold" and is still very much trading as a risk asset ... and that's OK​​​​. Justification for this can be found through simple observation: i.e. with the same macro inputs — Gold (5D) +2.48% Bitcoin (5D) -11.33% and through correlation with the S&P 500 — Despite the drop in prices, a record high 76.5% of BTC volume is held in the wallets of long-term investors. More: The Fear and Greed Index level today is at 23, "Extreme Fear." This is actually up from January's low of 11. Other times that the Fear and Greed Index has reached "Extreme Fear" include May-July 2021 (Chinese Ban) and March-April 2020 (Begining of COVID-19.) Both occasions were followed by a significant increase in the total cryptocurrency market cap.

Traders are hoping the geopolitical uncertainty and market instability will force Federal Reserve Chair Jerome Powell to avert his plans to unwind liquidity-boosting stimulus measures. If he does so, this will bode well for the cryptocurrency market, which has dropped 40% over the last three months predominantly on the fear that the Fed will hike rates. More: The markets are currently priced for six 0.25% interest rate hikes in 2022. Jeff Dorman, the CIO of Arca, told CoinDesk that the scripted rate hikes will still happen, but the 6-9 the markets have reflected have little chance of coming to fruition.  He predicts 2-3 rate hikes in 2022. The market is also already pricing in a rate cut in 2024, indicating that the rate hikes won't impact the market because a reversal has already been priced in.

The collection of 104 CryptoPunks set to sell at Sotheby's on Wednesday was removed at the last minute. The collection was expected to sell for between $20M and $30M, netting the seller, who goes by 0x650d on Twitter, a handsome profit after buying them for $7M in July 2021. The removal from Sotheby's led many to speculate that the seller made a last-minute private deal or didn't have enough interested buyers. Then @0x65d clarified on Twitter:

Web3 Tweet: Sean Lippel on the state of DeFi.

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Trevor Grant is an entrepreneur, investor, and writer based out of Chicago, Illinois. His primary area of interest is web3 venture capital, social tokens, and infrastructure. Other pursuits include screenwriting, yoga, and traveling. He holds a BS in biomedical engineering.   Connect with him on Twitter @trevorisonline Editor Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 Ford.

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