eToro: Playing the crypto trade as Russia-Ukraine tensions remain on a knife edge
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In this Stockhead series, Josh Gilbert – market analyst at global investment platform eToro – gives investors the scoop on all things Nasdaq related; the key market themes, along with popular investment trends based on eToro’s data and insights.
Investors will generally rotate out of perceived risky assets when uncertainty arises.
That’s why we’ve seen assets such as Bitcoin and some tech stocks come under pressure over the last week.
On the other hand, many safe-haven assets are doing exceptionally well, with gold still trading higher for the week.
Most geopolitical crises have historically had minimal long-term global market repercussions, although markets that are directly tied to an event can tend to have much more significant and longer-lasting effects.
For example, the Russian stock market index has fallen by around 20 per cent so far this year.
The biggest impact that this conflict could have is on commodities like oil. The price of oil is currently just shy of US$100 a barrel, and the strained relationship between Russia and the Ukraine may cause it to rise above this level for the first time since 2014.
This would essentially form a double-edged sword for markets, as it could dent the global economy’s growth prospects, while also driving inflation higher.
If tensions between the two countries remain high, crypto is likely to see additional downward pressure, and it’s anticipated to hit the lows we’ve seen so far in 2022.
This uncertainty, combined with the Fed’s tightening of monetary policy, has increased investors’ fear in the short term.
What’s important in all of this is that the political instability will once again highlight Bitcoin’s main goal of being a transparent, open-source, peer-to-peer network not controlled by a single administrator or central bank.
This means that even if banks are closed and local currencies fall in value during times of instability, citizens will still have access to capital through crypto.
As these tensions continue, risk assets will remain on edge, with safe havens outperforming.
Nevertheless, if the US can manage a peacemaking deal, we will likely see a relief rally from risk assets.
Events like this illustrate the importance of diversification and avoiding overexposure to a single asset class.
When these tensions arise, some assets such as gold will weather the storm and often perform well, while other assets such as crypto will respond with higher volatility.