The Volatility in Bitcoin Is Only Getting Worse

What to make of the current volatility in Bitcoin (BTC-USD)?

Fluctuations and forecasting of exchange rates of virtual money bitcoin (BTC-USD). Red and green arrows with golden Bitcoin ladder on paper forex chart background. Cryptocurrency concept.
Source: jantsarik /Shutterstock.com

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

In the last month, Bitcoin has swung from $36,000 up to $44,590, back down to $37,000, and up again to its current level near $43,500. Investors have both cheered and jeered each time Bitcoin rises above or falls below the $40,000 mark, which seems to have become a psychological demarcation for the digital coin.

Pulled Into the Conflict

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

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

Bitcoin Used To Dodge 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 are frozen or seized around the world as part of the global sanctions imposed by other nations. With the Russian ruble at a record low in recent days, Russians have been piling into Bitcoin and other cryptos such as Tether (T-USD), which is a stablecoin tied to the U.S. dollar. Trading between rubles and cryptocurrencies has spiked in recent days on Binance, the world’s largest crypto exchange.

Global sanctions have targeted Russian banks, the country’s central bank, and its sovereign debt. Multiple countries in Europe, as well as the U.S. and Canada, have also cut off Russian banks’ access to the interbank messaging system SWIFT that 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 into the less regulated world of cryptocurrencies, notably Bitcoin.

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

Regulations and Mother Earth

Even before Russia invaded Ukraine and global markets were thrown into a tailspin, Bitcoin had been weighed down by a number of ongoing issues that have plagued the cryptocurrency and its legions of fans. These include continued threats of regulation from Capital Hill and the Securities and Exchange Commission (SEC), as well as heightened concerns of 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 fell from 41.6% in 2020 to 25.1% last summer as the practice of Bitcoin mining was outlawed in China. Crypto miners were forced to abandon Chinese hydro electricity and move to the U.S. and other countries where dirtier gas supplies much of the computing power needed to mine for digital coins and tokens. The environmental impact of Bitcoin mining, combined with persistent volatility and threats of greater oversight, conspired to bring the price of Bitcoin down 50% from its 52-week high of nearly $69,000 last November. And that was before war broke out in Eastern Europe last week.

Bitcoin Is Not Worth the Stress

Bitcoin’s wild ride continues.

Investors who believe in the digital coin have likely made peace with the ongoing volatility. Russia’s attack on Ukraine is just the latest reason for Bitcoin to spike higher and then plummet lower. That said, with all the persistent issues and uncertainty plaguing Bitcoin, the largest digital coin is not a good bet for most investors. With all the churn, holding Bitcoin either directly or through an investment vehicle is likely to wreck a portfolio.

Until Bitcoin finds some measure of calm amid the current storm, investors should avoid the stress and stay away from the digital asset. Bitcoin is not a buy.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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


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