The first catalyst was the announcement by Jerome Powell of the possibility of an interest rate hike after the Federal Reserve’s March meeting. The markets reacted bearishly as investors worried about a tightening Fed, primarily institutional investors.
Therefore, investors began pulling out money from riskier assets such as crypto.
The second catalyst is the current geopolitical conflict in Eastern Europe. Putin has seemingly declared war on Ukraine by sending troops to the east of Ukraine with the excuse of wanting to demilitarise and denazify the country. As of writing, the Russian military edges towards Kyiv, the capital of Ukraine, and it seems all is lost for the country.
Before I continue, let me clarify that I am not a financial advisor, and everything that I write here is my own opinion.
Cryptocurrencies have since recovered from the sell-off in the past two days, bringing Bitcoin to $34,000. Currently, it is trading at $39,418, according to Coindesk.
This price movement mimics that of the stock market. The S&P 500 closed 2.24% in the green while the Nasdaq closed 1.64% green.
However, this rally may be short-lived.
The rally, primarily due to a promise of talks between Russia and Ukraine, may not last long as the situation is still very uncertain.
I am sceptical about whether this talk will go through as not too long ago, Putin said that he would not invade Ukraine and are pulling back his troops, but just the day after, Russia invaded Eastern Ukraine.
According to ABC News, President Zelenskyy told news outlets that Russia may storm the capital of Kyiv tonight, and if that were to happen, we could see a fall in all financial markets.
For now, we can only wait to see what happens.
In my previous article, I have discussed the failure of bitcoin as an inflation hedge and as a safer asset in times of crisis. Instead, bitcoin is behaving like a tech stock. This is not what we expected of an asset considered to be ‘digital gold’.
Instead, real gold rallied when Russia invaded Ukraine while Bitcoin tanked.
The prices of bitcoin and gold seem to have an inverse relationship. However, it is hard to use this to determine what we should do as many other factors are involved.
What I can say is that crypto has not been this low since last since July of 2021. So this might be a buying opportunity.
However, if you are looking for actionable steps, many advise against buying the dip and instead, investors should be patient as there is too much uncertainty.
I will continue buying ETFs and cryptocurrencies like $BTC and $ADA and increasing my long-term positions.
Take care and stay safe.