“Russia’s incursion into Ukraine may be the point cryptocurrencies need to lift prices” — Paul Ebeling
In my discussion with our war room, aka trading desk, we discussed the catalyst needed to take cryptocurrency prices North.
It is no secret that tightening monetary policy was expected to weigh on risk assets, and so cryptocurrencies too.
The Big Q: What would it take for cryptocurrencies to go up, contrary to what markets were pricing?
The Big A: Our view is that the long-term trajectory for cryptocurrencies is Bullish and that a sort of Black Swan event would be needed as an immediate-term catalyst to drive prices higher. And along came President Putin, just as Covid collapsed he made his long awaid move in a flash.
In Y 2020, the VirusCasedemic saw central banks flood the financial system with unprecedented amounts of liquidity, an event that saw all manner of risk assets soar in value, especially cryptocurrencies.
But the prospect of policy tightening by major central banks against a backdrop of stronger-than-expected inflation meant that the same tide that lifted all boats, was now threatening to go out, putting downwards pressure on cryptocurrencies and other risk assets.
The Russian invasion of Ukraine has dramatically altered the decision-making matrix by which the Fed and ECB will have to contend with.
With Crude Oil now well over the $100 higher energy prices will compound already heightened inflationary pressures in major economies like the US and Europe and threaten economic growth.
Tightening monetary policy at a time of increased defense spending, particularly in Europe, could very easily push economies barely on the mend into recession.
Because Europe is close to the epicenter of the Russian action, consumer sentiment has already taken a beating and with Russia a major trading partner with many European economies, the full extent of Western sanctions have not been fully calculated.
Last Monday, trading between the Russian ruble and Bitcoin, which is pegged to the USS doubled to around $60-M a day as reported here.
Many Russians are using crypto as a means to facilitate capital flight and to swap rapidly depreciating rubles for cryptocurrency as a Key way to cope with the sanctions.
Cryptocurrencies are working as intended and that knowledge will no doubt weigh on the minds of investors from here forward.
If cryptocurrencies ever had to prove their use case, this is it.
Have a happy, prosperous weekend, Keep the Faith!