In February 2022, the entire world was shocked, when Russia declared that it was going to wage a war against Ukraine. There was a similar sense of outrage when the Israel-Gaza war restarted in October 2023. Both these wars are continuing and are adversely affecting the economy of many countries. However, cryptocurrencies are not a part of the mainstream traditional economy, thus they will have different benefits and risks even during times of war. The decentralized nature of cryptos allows digital currencies to be traded faster. This helps users to get money faster even during incidents of armed conflicts.
Impact of Wars on Cryptocurrencies
Cryptocurrencies though not a part of the mainstream financial system are not completely immune from the disruptive impact of wars, especially if the war’s magnitude is severe. These are some of the possible impacts of wars on the value, credibility, and efficiency of cryptocurrencies.
Safer Option
In times of war, some wise investors may choose cryptocurrencies like Bitcoin as a haven. The main reason behind such decisions is that Bitcoin does not have any ties with government agencies. Therefore, it is less vulnerable to the political and economic impacts of war. Consequently, this can increase the prices of cryptocurrencies if the demand for cryptos increases during the war.
Changes in Regulation
It is not unusual for governments to stay in emergency mode during wars which directly affect their credibility and existence. Therefore, during wartime, government agencies may become extra cautious of cryptocurrencies and impose harsh regulations and restrictions on their use. For example, when Hamas attacked Israeli citizens in October last year, the investigating agencies of Israel took action against crypto firms for unknowingly financing Hamas. Similarly, the US treasury targeted individuals for misusing cryptocurrencies for terrorist and other unlawful activities.
Volatility
Cryptocurrencies are always known for being volatile and this feature remains intact during periods of war. Therefore, traders should exercise caution in the crypto market. They also should have high levels of preparedness for rapid declines or increases in prices.
Period of Uncertainty
The economic impact of war is mostly negative as far as the traditional market is concerned. Uncertainty increases and investors become anxious and take drastic measures to stop or curtail their investments. For instance, when Russia invaded Ukraine in 2022, a large number of multinational companies and investors exited the country. Sometimes, wars cause shocks in the stock market and prices may dramatically increase or decrease.
Disruptions in the Supply Chain
Supply chains are the lifeblood of every economy. During peacetimes, supply chains function as per expectations and the impact usually remains normal and predictable. However, wars can disrupt supply chains and sometimes destroy them especially if the warring sides belong to the same geographical regions. Therefore, economies suffer and it leads to shortages and disruptions in production. Cryptocurrencies however may not be affected directly since it is international in nature and wars usually have local impacts. However, if the disruptions are worldwide, then there is a high possibility of it being impacted.
Also Read- Role of Blockchain Technology in E-commerce.
Conclusions
The impact of wars on economies is largely a negative and disruptive one. Wars not only cause massive disruptions, it also lead to uncertainties and price fluctuations. Cryptocurrencies can provide some respite to investors since they are not reliant upon centralized agencies. Moreover, it can act as a hedge against inflation. Governments not directly involved in wars may pass strict regulations to prevent misuse of cryptocurrencies just like the US did last year. Therefore, the overall impact of wars on cryptocurrencies is highly variable depending upon its magnitude, warring sides, and location.
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