After the slump, investors look toward crypto to hedge against conflict fallout


It was very surprising when, at the beginning of the conflict that is now taking place between the governments of Russia and Ukraine, the major cryptocurrencies began to show a stagnation, and were not quite the sanctuary that could have been expected.

Ever since the invention of digital assets over a decade ago, many advocates of decentralized finance (DeFi) held the opinion that should there be a serious global political or economic matter which influences the traditional centralized markets, storing value outside of the national financial markets systems would be a safe haven.

Whilst Bitcoin and the more popular altcoins continue to tread their usual path of intriguing volatility, something interesting has emerged, and it is much more substantial than just private investors moving toward cryptocurrency as a means of shoring themselves up in the case that the sovereign currency or asset base in their home nation depreciates due to the current war.

This time, the venture capital investors are moving in, and the clever money has been courting the cryptocurrency development sector to the tune of huge sums of investment.

In February alone, an astronomical $4 billion has been invested by venture capital firms into the cryptocurrency sector according to research from Fundstrat.

In the first week of March, a remarkable $400 million was invested in crypto start-ups.

By the end of last week, almost $3 billion had been invested into new cryptocurrency funds in just two weeks, with some venture capital fund managers having cited the conflict that is currently in place in Ukraine as a contributing factor in accelerating investment into digital assets and blockchain projects.

Some of the native coins on relatively new platforms are attracting very high valuations, and as the Ripple saga draws to an end, and it is looking likely that the US authorities may lose their lawsuit against Ripple, confidence in XRP as a payment protocol is growing rapidly, a dynamic that is very timely given the current situation with the conflict in Ukraine and the economic fall-out from sanctions imposed on Russia by western nations.

In some cases, fund managers have noticed an allocation of capital away from physical assets such as real estate, or long term structures such as bonds into cryptocurrency, with data from Refinitiv backing this up, recording a $7.8 billion combined having been withdrawn from bond funds in the week ending March 9.

Institutional crypto products have also been gaining ground, with $163 million having been invested in digital asset based products and funds in two weeks until March 4, these being the largest inflows so far this year.

Whilst the fiat currency markets are becoming volatile and the stock markets have really reacted with incredible volatility, especially among NASDAQ-listed big cap tech stocks, fund managers in the crypto space have not been so affected, with many having stated that there is no panic, even with the world's economy being brought under extreme stress tests as a result of the conflict and global reaction to it.

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*At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules respectively. They are not available for trading by Retail clients.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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