The phrase “may you live in interesting times” is said to be derived from an ironic curse and it is easy to see why, in what has been a very interesting few years for the world.
Indeed, one might say the whole 21st century has been ‘interesting’, firstly with 9/11 and the wars that followed, then the financial crisis, Brexit, COVID-19, the Ukraine war and now the current turbulence, so much of which seems to be centred on the actions of Donald Trump.
This longer view of the past 25 years may be worth reflecting on, for one of the questions many cryptocurrency investors may ask just now, with others seeking to provide an answer, is how does geopolitics affect the crypto market?
Before examining the question, it is worth noting that it is into this world of 21st-century uncertainty that crypto was born and has grown. The world may have been very turbulent in the last few years, but this has not stopped crypto from becoming increasingly prominent.
Why Might Geopolitics Impact On Crypto?
All this needs to be borne in mind, as News AZ International has approached the question by stating that: “Cryptocurrency markets are increasingly shaped not only by technology and finance, but also by global geopolitical developments.”
It added: “From armed conflicts and sanctions to trade disputes and energy shocks, geopolitical tensions now play a direct role in driving volatility, investor behaviour and long-term narratives in the crypto space.”
This sounds reasonable enough. After all, many markets are made more volatile by major geopolitical developments, although not always in such obvious ways as the current surge in oil and gas prices as an embattled Iran seeks to block the Straits of Hormuz.
Indeed, the News AZ explainer lists some of these effects that can impact on markets:
· Reduced investor confidence
· Changing economic expectations
· Reduced capital flows
· Reassessments of risk
· In some cases, investors will switch to ‘safe haven’ assets, such as gold
However, it is also worth remembering that cryptocurrency itself is characterised by being more volatile than other assets. That can increase risks, but also create more opportunities, especially for smart investors using our crypto conversion platform well.
Indeed, even in febrile times like these, there may be some excellent opportunities that you can use to trade successfully.
Is Crypto Riskier In A Crisis, Or A Safe Haven?
A notable feature of the News AZ article is that it gives no clear answer to the question of whether crypto can be, like gold, a safe haven in troubled times. This is not because it is being evasive, but, it notes, because this safe haven idea is “complex and still evolving”.
This is because, on the one hand, crypto, like gold, is independent of any central bank. So, for instance, its value will not be automatically impacted by central bank interest rate decisions made in a crisis.
However, the way it is treated by some investors is as a ‘risk asset’ that can be divested in troubled times to reduce exposure.
What this suggests is that it may be a matter of judgment for individual investors whether they regard crypto as an asset to accumulate or divest during crises.
Once more, one may consider this in the context of a world in which there has been a succession of crises and no certainty that this will change anytime soon.
Crypto was born amid such turbulence and has thrived, but some may ask whether its increasingly mainstream profile will change the dynamic.
Equally, there is always the risk of recency bias: this time is certainly more volatile and dangerous than, for example, the optimistic years that followed the end of the Cold War. But the Cold War was not just a time of great perils but also an era of ‘baby boomer’ prosperity.
Why Could Other Factors Do More Than Geopolitics To Impact Crypto Values?
In addition, when it comes to any one cryptocurrency, the value it may hold a few years hence may have nothing to do with any current geopolitical situation.
That may be because particular crises, such as the Iran war, will end and the pressure on things like oil and gas prices will dissipate, but also because so many other factors remain relevant.
For example, Motley Fool, assessing the prospects for the cryptocurrency XRP, has predicted it is likely to be worth less in five years because its issuer, Ripple, has created a stablecoin that offers a clear alternative.
Therefore, in some cases, cryptocurrencies may perform badly because of the actions of their own issuers, not decisions taken in the Kremlin or the White House.
Geopolitical uncertainty may create some volatility on the crypto markets, but it is far from the only factor traders should take into account as they make investment and divestment decisions.