Deutsche Bank Analyst: Why cryptoassets are showing resilience in the current volatile market phase – and why it won’t stay that way

War in Ukraine causes turbulence on stock and bond markets
Cryptocurrencies defy volatility
Resilience only short-lived?

The Ukraine war continues to cause great turbulence on the international stock and bond markets. The Russian invasion of Ukraine initially led to a dramatic sell-off on the stock exchanges, but in the weeks that followed and even now the developments are like a roller coaster ride, with every word on the Ukrainian and Russian side being weighed in gold. In the past few weeks, negative news in particular has repeatedly led to major losses on the markets, so that according to QC Partners portfolio manager Thomas Altmann, “The absence of new negative news [] good news for the stock markets at the moment”, as he put it to the German Press Agency.

The situation is different in the crypto markets, however, as the chief investment strategist for private and corporate customers at Deutsche Bank, Dr. Ulrich Stephan, recently stated in his newsletter “Perspectives in the Morning”. Bitcoin, the largest cryptocurrency by market capitalization, has been relatively stable month-on-month since the outbreak of the Ukraine war. A look at the data from CoinMarketCap even reveals that the Bitcoin price has already increased more than 20 percent since February 23, 2022. A surprising development, considering that in the past the prices of cyber currencies have often carried the losses on the stock and bond markets, for example at the time of the outbreak of the Corona pandemic.

Bitcoin stable despite war

So how can the resilience of digital currencies be explained in the current tense situation? As Stephan suspects, the harsh sanctions imposed on Russia by Western states in response to the incursion into Ukraine could play a role. In his opinion, investors affected by the sanctions have started to shift their assets into crypto assets in order to “avoid the freezing of assets and remain liquid”, as he writes in the newsletter. This would help stabilize crypto prices.

The Deutsche Bank strategist is not alone in his assessment that Russian investors could use cryptocurrencies to avoid sanctions. ECB boss Christine Lagarde explained in an interview at a conference on digital central bank money that there are actors and companies “who are obviously trying to exchange their rubles for crypto assets,” as Dow Jones Newswires reports.

That is why the trend will not prevail in the long term

However, Stephan does not assume that the resilience of cryptocurrencies during the current high volatility is a longer-term phenomenon: “Given the extreme energy intensity compared to conventional means of payment and increasing regulation, I assume that the resilience of cryptoassets in volatile market phases is short-lived,” says the expert.

In his view, it is not unlikely that against the background of soaring energy prices, more governments will decide to ban cybercurrency mining, as the People’s Republic of China, for example, has already done. For this reason, Stephan does not assume that Bitcoin & Co. will return to the record levels of November last year in the near future. Bitcoin had peaked at over $68,000 at the time. It is currently hovering around $42,000 (as of March 23, 2022).

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