The value of Bitcoin, the world's largest cryptocurrency, and other digital coins fell sharply after Russia launched a full-scale invasion of Ukraine. Bitcoin fell by more than 6.6% following Russia's invasion, trading at around $35,982 Thursday afternoon.
The nosedive in the value of major cryptocurrencies came after Russian President Vladimir Putin ordered an attack on major Ukrainian facilities and military installations. Russian tanks and troops entered the country while Russian artillery pounded the Ukrainian capital.
Bitcoin was trading at around $34,338 at its lowest point before recovering slightly throughout the rest of the day. Ethereum, the world's second-largest cryptocurrency, also fell by as much as 8.7% to a low of $2,437 per coin. Both cryptocurrencies traded at their all-time high in November last year, with Bitcoin at around $68,990 and Ethereum at around $4,865.
Analysts said the war in Ukraine is the ultimate test on whether cryptocurrencies or gold is the real safe haven. Following the Russian attack, gold prices spiked to their highest level since the end of 2020. Gold was trading at around $1,950 an ounce Thursday, a 0.8% increase for the day.
Investment analysts at Hargreaves Lansdown said investors and speculators are now running for the hills and transferring their assets to gold and other traditional safe-haven assets. Cryptocurrencies have long been touted as being akin to digital gold, but that is apparently not the case now, analysts said.
Experts said given the magnitude of the crisis and the prospect of it becoming even worse in the coming months; cryptocurrencies will continue to be highly volatile when compared to proven safe-haven assets like gold and other commodities. It is not yet known how serious Russia's invasion of Ukraine will affect the global market in the years to come.
Senior market analyst at Oanda, Edward Moya, said cryptocurrencies continue to be a "risky asset" given the situation in Ukraine and the state of the current financial markets. Moya forecasted that cryptocurrencies would continue to fluctuate by as much as 20% in both directions.
The threat of increasing U.S. interest rates has also caused Bitcoin to plummet this year. The value of Bitcoin has decreased by more than 20% since the start of the year. The cryptocurrency has also been battered by continued speculation on the Federal Reserve's next moves.
Moya said the risks are getting close to being priced in, and the downward trend in the cryptocurrency markets will end once it gets over the first Federal Reserve rate hike. The Federal Reserve is expected to start raising interest rates within the next month.