Is the Ukraine crisis turning BTC into a safe haven asset?

DateApril 09, 2022
Reading Time7 min
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Etienne Goffin
Senior Economist
Let’s consider the recent case of Ukraine to assess the situation for BTC as a safe haven.
TL;DR - Audio version

This is also available as an episode of our podcast "Unchained Crypto Insights" if you would rather listen than read.


There is no consensus yet on whether the Bitcoin could be considered as a safe haven asset (SHA) – a “no-or-very-low-risk” asset that maintains or increases its value during economic turbulences. Even though BTC possesses the fundamentals of safe havens, its high historical volatility and relative short-term correlation with equity markets makes the picture a bit blurrier. Let’s consider the recent case of Ukraine to assess the situation for BTC as a safe haven.

The high levels of uncertainty generated by the crisis in Ukraine (by both the military operations and the economic consequences) are pushing many states and non-state actors to take decisive actions to contain the crisis and to mitigate its short- and medium-term effects.

The general decrease in stock market values as well as the rapid surge in energy and commodity prices are creating additional tensions in a global economy that still hasn’t recovered from Covid. Higher national debt levels, lower activity (compared to pre-crisis levels), and growing rates of inflation (5.8% in February 22 in the Eurozone) are announcing structural readjustments and deeper turbulences to come.

Any investor who anticipates economic turbulences and would like to limit the exposure to risks will diversify his portfolio and will be looking for assets that are expected to retain or increase value while other assets plunge. These are safe haven assets.

Even though the status of safe haven ultimately depends on specific economic circumstances at a specific moment in time, four classes of assets have been historically considered as safe-haven, due to the consistency of their behavior compared to equity markets. Gold, high quality treasury bonds and currencies (e.g. USD, Swiss Franc and Japanese Yen) and defensive stocks (e.g. from companies producing goods with inelastic demand such as food, energy, healthcare).

With the development and popularization of cryptocurrencies, some consider BTC as “digital gold” and argue that BTC is also a safe haven.

4 characteristics

Safe haven assets possess four main characteristics.

Scarce supply and a predictable demand (present and future) increase the asset’s longevity, ensuring the value is maintained through time. The total supply of BTCs has an absolute cap of 21 million units, guaranteed by the underlying blockchain, which makes it limited and predictable. Currently, 90% of the total supply have already been mined, equivalent to 18.9 million of BTCs, available on the market.[1] On the demand side, the number of transactions and users has been growing since the introduction of Bitcoins. In 10 years, the number of daily transactions on the chain has been multiplied by 40 (from 6.300 in March 2012 to 268.000 in March 2022)[2]. In 2021, the number of active BTC wallets is estimated to 172 million, among which 147 million belong to corporates and 25 million to private owners[3]. These wallets represent an estimated 106 million owners globally.

High levels of liquidity where the asset can be easily converted into cash at any point in time. This feature enables market actors to quickly update their position with the evolving economic conditions. The decentralized infrastructure of BTC, allowing for 24/7/365 trading, exchangeable with all major currency pairs (incl. fiats), final settlement of global transactions within minutes, and complete independence from governments, offer a robust guarantee for liquidity. The growing number of exchanges as well as the development and expansion of the technological tools (e.g. smartphone apps, crypto credit cards) are improving access to cryptos and liquefying the market as well.

Varied utility – an asset with many potential uses has a lower risk for its demand to fall, and its value to decrease. A major difference with other safe havens is that BTC is not backed by any underlying asset nor by a sovereign government. As gold, if you own a bitcoin, you directly own the asset, with no intermediaries. As a currency, BTC can be used as a unit of payment, a reserve of value and as a speculative investment. Even though its role as a unit of payment is still limited - mostly due to its young age, high volatility and costs of transactions - it is estimated that more than 23,000 venues[4] already accept Bitcoins for the payment of products and services, among which big names in the tech (Microsoft), finance (Paypal) and food industry (Starbucks).

Permanence – the asset’s quality is stable and doesn’t deteriorate through time. The BTC’s blockchain relies on the most secure storage systems that guarantee information integrity, reliability, and security. It is not at risk of being seized. Because it is not related to any other currency, it is not affected by inflation and its value cannot be directly influenced or manipulated by governments – through monetary policy. As such, BTCs can be considered as permanent assets. Due to its decentralized infrastructure, BTC is also more resilient to long-term threats than other assets traded on centralized virtual platforms.

Bitcoin meets the safe haven criteria on many levels. Let’s now have a look at its price evolution since the beginning of the Ukrainian war and its correlation with other markets.

Bitcoin's evolution

BTC’s price evolution and correlation with other markets since the beginning of the Ukrainian crisis

BTC’s value has evolved very fast since the 24th of February, when Russia decided to launch a military attack against Ukraine.

BTC’s price has dropped below USD 35k on the day of the invasion (the 24th of February) before recovering and getting back to its pre-crisis value the day after, showing that BTC markets have absorbed the news quite fast. Its value went up following the Western sanctions against Russia, reaching a peak of just above USD 44k. Since then, prices have been evolving between USD 38k and USD44k, heavily influenced by the hourly news updates on the evolution of the conflict.

As the Russia-Ukraine war is in its second week, the US/EU sanctions have started to take effect and a surge in BTC’s trading volumes in ruble and hryvnia have been noticed. The demand for BTCs and cryptos in both countries rose, as their citizens are trying to find alternatives to their countries’ financial institutions, failing at preserving the value and access to financial assets.

The Ukrainian government and other NGOs that support the military have raised more than USD 63 million in crypto through donations, among which BTC represents one third.[5] Similarly, in Russia, trading volumes of bitcoin and stablecoins have surged since Moscow laid siege to Kyiv. With the plunging value of the ruble, many Russians are now using BTCs as a hedge and to protect their savings from the additional geopolitical risk. [6]

Regarding the correlation between BTCs and equity markets (S&P500), data from Bloomberg shows a relative de-linking since the beginning of the Ukrainian crisis. It went down from 0.7 earlier this year to 0.55. A zero-correlation shows two assets as completely independent whereas a value of 1 means a perfect correlation[7]. It’s interesting to note that an increased correlation was observed during the two years of the covid crisis, according to the International Monetary Fund[8]. The correlation between Bitcoin price volatility and S&P 500 index volatility had been multiplied by four, compared to pre-covid period[9].

The adoption of cryptos by traditional investors partially explains the strong correlation with equities, the recent decrease can be explained by all-time high in the number of long-term BTC holders: 57% of them hold their coins for more than 1 year[10]. As a consequence, cryptocurrencies have held up better than stocks since the war started.

The correlation between BTC and gold has been the lowest in over 6 months. It seems that investors treat these two assets differently. Gold’s price went up by 8% in two weeks[11], going temporarily beyond USD 2k an ounce, whereas BTC is priced as a risky asset, with a much higher volatility. This behaviour is somehow logical, considering the level of uncertainty on the markets and the relationships they have had with gold for centuries.

Digital Gold?

So, is BTC digital gold?

BTC possesses some of the fundamentals of safe havens, but as a 12-year-old technology that has never faced any systemic crisis before, it is difficult to predict its behavior in the following months.

The invasion of Ukraine has changed the nature and levels of risks on currency markets: the risk of being cut off from global markets becomes credible for many countries and people, and as such, increases the attraction for cryptos. “If the global fiat system becomes a geopolitical tool that can be used to alienate a superpower, then alternatives to fiat become critically significant”, the crypto trading firm QCP stated in its Telegram channel.

Because a safe haven is a relative notion that depends on the investor’s position and markets’ conditions at a specific moment in time, we could expect Ukrainians and Russians to deepen their position in BTC as their currencies continue to plunge and their access to international financial markets remains constrained.

As general economic conditions are deteriorating, many see a growing role to play as a reserve of value and a unit of payment that is less constrained by national and international regulations. But it is ultimately its wider adoption, its institutional use and its relationship with other assets that will tell if the BTC is a safe haven or not. The long-term trend suggests that BTC is somehow in transition from a risk-on asset to a risk-off asset.[12]

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Etienne Goffin
Senior Economist

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