Bitcoin: Volatility is only getting worse

What to do with current volatility in Bitcoin (BTC-USD)?

Source: jantsarik/

The world’s largest cryptocurrency has experienced extreme highs and lows in recent days after Russia’s attack on Ukraine and has traded like a stock, casting doubt on the popular thesis that Bitcoin is the equivalent of “digital gold” and a hedge against volatility and inflation.

Last month, Bitcoin went from $36,000 to $44,590, back to $37,000 and back to its current level near $43,500. Investors have cheered and scoffed each time Bitcoin rises or falls below the $40,000 mark, which seems to have become a psychological demarcation for the digital currency.

Pulled into conflict

With the widely held view that Bitcoin serves as a store of value in the same way as gold now in tatters, cryptocurrency analysts and enthusiasts are left trying to figure out why the biggest cryptocurrency has been caught up in recent stock market volatility. And what broader purpose does the digital token serve?

The answer to the first volatility question seems to be that Bitcoin has been dragged into the conflict in Ukraine. According to various media reports, nearly $15 million worth of BTC-USD was donated to the Ukrainian war effort through anonymous donations made by cryptocurrency investors.

Bitcoin used to avoid sanctions

At the same time, there are reports that the Russian government, military and ordinary citizens are also turning to Bitcoin and other cryptocurrencies, as access to cash and other conventional assets is frozen or seized around the world as part of global sanctions imposed by other nations. With the Russian ruble at a record low in recent days, Russians are hoarding Bitcoin and other cryptos such as Rope (T-USD), which is a stablecoin pegged to the US dollar. Trading between rubles and cryptocurrencies has skyrocketed in recent days in Binancethe largest cryptocurrency exchange in the world.

Global sanctions target Russian banks, the country’s central bank and its sovereign debt. Several countries in Europe, as well as the US and Canada, have also cut off Russian banks’ access to the SWIFT interbank messaging system, which connects more than 11,000 banks and financial institutions in more than 200 countries. With conventional banking avenues no longer available, it is forcing Russian financial and government institutions to move to the less regulated world of cryptocurrencies, most notably Bitcoin.

This situation has contributed to Bitcoin’s current volatility and has also led to further calls for greater regulation and oversight of the entire cryptocurrency market.

Regulations and Mother Earth

Even before Russia invaded Ukraine and global markets went into a tailspin, Bitcoin was burdened by a series of ongoing problems that plagued the cryptocurrency and its legions of fans. This includes ongoing regulatory threats from Capital Hill and the Securities and Exchange Commission (SEC), as well as growing concerns about the environmental impacts caused by the energy-intensive practice of Bitcoin mining. A new study published in the scientific journal Joule claims that Bitcoin mining produces as much carbon dioxide emissions each year as the country of Greece.

The study also claims that the share of renewable energy powering BTC-USD mining has dropped from 41.6% in 2020 to 25.1% last summer as the practice of Bitcoin mining was banned in China. Cryptocurrency miners have been forced to abandon the Chinese hydroelectric dam and move to the US and other countries where dirtier gas provides much of the computing power needed to mine digital coins and tokens. The environmental impact of Bitcoin mining, combined with lingering volatility and threats of increased oversight, conspired to bring Bitcoin’s price down 50% from last November’s 52-week high of nearly $69,000. And that was before the start of the war in Eastern Europe last week.

Bitcoin is not worth the stress

Bitcoin’s wild ride continues.

Investors who believe in the digital currency have likely made peace with the ongoing volatility. Russia’s attack on Ukraine is just the latest reason for Bitcoin to rise higher and then fall lower. That said, with all the lingering issues and uncertainties plaguing Bitcoin, the biggest digital currency is not a good bet for most investors. With all the churn, holding Bitcoin either directly or through an investment vehicle is likely to destroy a portfolio.

Until Bitcoin finds some calm amid the current storm, investors should avoid stress and stay away from the digital asset. Bitcoin is no a purchase.

As of the date of publication, Joel Baglole did not (directly or indirectly) hold any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to publication guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter for The Wall Street Journal and also wrote for The Washington Post and Toronto Star, as well as financial websites such as The Motley Fool and Investopedia.

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