Bitcoin’s price moves since Russia invasion leave it looking flat

Gold’s reputation as a safe haven asset has been enhanced by the Ukraine war. But not so for crypto - here’s what it’s done in the past month.

Bitcoin’s claim to be a safe haven for investors in time of turmoil – a digital gold – has been tarnished since Vladimir Putin invaded Ukraine last month.

While real gold, such as bars and bullion, has climbed since the February 24 invasion, the world’s largest cryptocurrency has fallen in value slightly – albeit with its usual high levels of volatility.

Since mid-February it has fallen almost 10 per cent in value.

The Russia-Ukraine war is becoming more horrific and things may change for Bitcoin, but today cryptocurrency is behaving like other risk assets such as shares.

Crypto specialists say digital currencies are still evolving and will take time to become a store of value. The big questions for investors are how long that will take to happen, if it will happen, and whether the rapid multiplication of cryptocurrencies we’ve seen recently will trap them in a speculation time warp?

Bitcoin has boomed but it doesn’t replace gold as a safe haven. Picture: Joe Raedle/AFP

The gold price’s 8.4 per cent gain since late February until last week, when it lost a little lustre, showed gold doing what it’s always done. When we’re in a world of worry, people gravitate towards the precious metal that has been a store of wealth for more than 5000 years.

Bitcoin began in 2009 as a digital currency independent of any government or central bank, and its rise has been spectacular, breeding thousands of other – mostly copycat – cryptocurrencies.

In the past five years Bitcoin has boomed, growing 40 times in value from around $1200 to $53,000. But it’s also been incredibly volatile – in November last year it was selling for $90,000, and it has effectively doubled then halved twice since January 2021.

Digital currency experts say bitcoin will eventually become a store of wealth like gold because it has built-in scarcity.

Bitcoin mining – where coins are created on computers through complex mathematical calculations – has been capped at 21 million coins in total, and so far about 19 million have been created. It’s forecast that the last bitcoin will be mined in 2040.

Nickel Digital Asset Management CEO Anatoly Crachilov says: “investors should not view Bitcoin as a safe haven asset at the current early stage of its adoption curve”.

“Bitcoin clearly behaves as a risk-on asset and will remain such until wider institutional adoption takes place,” Crachilov says.

Asset manager deVere Group’s chief executive, Nigel Green, says bitcoin is often referred to as “digital gold” because it was regarded as a safe haven uncorrelated with other financial markets.

The gold price rose after Russia invaded Ukraine. Picture: David Gray/AFP

But lately it has been seen as a risk asset, he says.

“The correlation between crypto and stock markets has been pretty solid over the last few months on both inflation news and geopolitical issues,” Green says.

“But this might all change again. The digital gold fundamentals for Bitcoin remain unaltered – namely its limited supply.”

So should you buy bitcoin?

Yes, if you like a bet, like financial roller-coasters, and believe that it and other cryptocurrencies are the future of finance.

You’ll also have to believe that countries’ central banks won’t create their own cryptos to dominate the market.

The potential reward is huge, but so is the potential to lose money.

I bought bitcoin and several other cryptos almost a year ago, betting that the wild speculation driving them higher would continue. It didn’t, and I’m down 30 per cent on my total investment, but I’m not selling.

Even if bitcoin doesn’t become digital gold, there may be more crazy buying sprees to come.