@$35974: Russia-Ukraine Conflict: Where Are Bitcoin and Crude Oil Heading?

Based on the latest updates, we are assessing European banks’ exposure, crude oil analysis and an outlook for bitcoin and cryptocurrencies. Russia launched a full military operation in Ukraine in the early hours of Thursday morning, sending Bitcoin lower.

Crude oil prices soared on the news with gold, reflecting the risk aversion mode. Moscow initially began naturalizing Ukraine’s air defence systems and military bases. The leading indices, S&P500, DAX30, FTSE100 and the Dow broke lower as Russia invaded Ukraine. Wheat and Corn futures posted moderate gains.

Russian troops crossed the Ukrainian borders from multiple directions in what appears to be a full-scale invasion. Poland, Estonia, Latvia and Lithuania invoked NATO Article Four.

Since 1949 Article Four was only triggered 6 times. If a NATO member has security concerns it may invoke Article 4 for consultation within the North Atlantic Council.

Explosions are heard in multiple cities in Ukraine including Kyiv, Mariupol, Odesa and Kahrkiv. President Putin will strive to win the war by Sunday. The US and EU are preparing new sanctions on Russia.

European Banks Exposure to Russia

Russia banks are well-prepared for economic sanctions. The US warned earlier this week that Sberbank and VTB will face sanctions in an event of a military invasion. Both Sberbank and VTB were not included in the UK sanctions as sanctioning these financial institutions may have repercussions.

Following the invasion, both Sberbank and VTB are down approximately -50% at the time of writing. The CBOE volatility index, also known as VIX spiked by +25%, over 36.00 at the time of writing.

The European Central Bank (ECB) asked European banks to report their exposure to Russia and whether they are able to contain the risks. Stress tests were conducted in the past by the ECB to ensure financial stability in an event of a crisis.

Some of the European banks that maintain high exposure to Russia are Unicredit, Societe Generale and Raiffeisen Bank.

Dutch lender ING, which has a large presence in Russia, said: “A further escalating conflict could have major negative consequences.” ING warned a couple of days ago that an invasion will have negative consequences. In addition, ING is reported to have some exposure to Russia.

The news of Russia attacking Ukraine is likely to affect central banks’ monetary policies. Rather than monetary policy tightening, the ECB may be forced to reconsider its plans for 2022.

The Fed and ECB May Revise Their Monetary Policies

Despite the fact US banks have limited exposure to Russia, the risk aversion that is gripping the markets may alter the Fed’s intentions to hike rates in March 2022. A sudden shift towards ultra-loose policy including Quantitative Easing (QE) measures may affect multiple markets including Forex, Stocks, Futures, Bonds and even cryptocurrencies.

QE measures may reflect greater volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term in the FX markets. Central banks may aim to cool the markets with various measures as was done some time ago. Credit rating agencies, such as Fitch and Moody’s may shortly make headlines. The volatility may be seen in USD currency pairs.

The upcoming sanctions are expected to be ‘the harshest package of sanctions’ the EU has ever implemented. The new EU sanctions are scheduled to be announced on Thursday evening at the emergency summit. The EU is expected to prevent Russian banks from accessing European financial markets.

One of these possible actions is to deny Russian banks access to SWIFT. The reaction to such sanctions may be devastating and may follow credit rating downgrades. Some reports suggest the EU is considering direct sanctions on Vladimir Putin.

The central bank of Russia began taking measures to contain the chaos. The central bank is banning short selling in Russian stocks. In a statement released on its website, the central bank stated the following: “In connection with the current situation in the financial market and in order to ensure the protection of the rights and legitimate interests of investors in the financial markets, reduce risks and limit excessive volatility, the Bank of Russia ordered brokers to suspend short sales on the exchange and over-the-counter markets from February 24, 2022 at 11:00 am Moscow time and until the cancellation of these regulations.”

Russia-Ukraine Crude Oil Outlook

Crude oil posted marginal gains in the energy markets, trading over $100 a barrel. Tapping the strategic reserves may only limit crude oil rally if coordinated action is taken.

source: tradingview

Following Japan’s devastating tsunami several years ago central banks intervened in the FX markets to weaken the Japanese yen. During the 2008 financial crisis, central banks coordinated a surprise rate to calm the markets.

Despite crude oil’s recent rally, a coordinated action may trigger swift and significant weakness in both WTI and Brent. Gold benefited from safe-haven flows as we often see during a global crisis.

Central banks that increase their gold reserves may consider selling some of the reserves, particularly the central bank of Russia. The central bank already announced it is intervening in the forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest trading market by volume. According to the Bank of International Settlements (BIS) latest survey, the Forex market now turns over in excess of $5 trillion every day, with the most exchanges occurring between the US Dollar and the Euro (EUR/USD), followed by the US Dollar and the Japanese Yen (USD/JPY), then the US Dollar and Pound Sterling (GBP/USD). Ultimately, it is the very exchanging between currencies which causes a country’s currency to fluctuate in value in relation to another currency – this is known as the exchange rate. With regards to freely floating currencies, this is determined by supply and demand, such as imports and exports, and currency traders, such as banks and hedge funds. Emphasis on Retail Trading for ForexTrading the forex market for the purpose of financial gain was once the exclusive realm of financial institutions.But thanks to the invention of the internet and advances in financial technology from the 1990’s, almost anyone can now start trading this huge market. All one needs is a computer, an internet connection, and an account with a forex broker. Of course, before one starts to trade currencies, a certain level of knowledge and practice is essential. Once can gain some practice using demonstration accounts, i.e. place trades using demo money, before moving on to some real trading after attaining confidence. The main two fields of trading are known as technical analysis and fundamental analysis. Technical analysis refers to using mathematical tools and certain patterns to help decide whether to buy or sell a currency pair, and fundamental analysis refers to gauging the national and international events which may potentially affect a country’s currency value. Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest trading market by volume. According to the Bank of International Settlements (BIS) latest survey, the Forex market now turns over in excess of $5 trillion every day, with the most exchanges occurring between the US Dollar and the Euro (EUR/USD), followed by the US Dollar and the Japanese Yen (USD/JPY), then the US Dollar and Pound Sterling (GBP/USD). Ultimately, it is the very exchanging between currencies which causes a country’s currency to fluctuate in value in relation to another currency – this is known as the exchange rate. With regards to freely floating currencies, this is determined by supply and demand, such as imports and exports, and currency traders, such as banks and hedge funds. Emphasis on Retail Trading for ForexTrading the forex market for the purpose of financial gain was once the exclusive realm of financial institutions.But thanks to the invention of the internet and advances in financial technology from the 1990’s, almost anyone can now start trading this huge market. All one needs is a computer, an internet connection, and an account with a forex broker. Of course, before one starts to trade currencies, a certain level of knowledge and practice is essential. Once can gain some practice using demonstration accounts, i.e. place trades using demo money, before moving on to some real trading after attaining confidence. The main two fields of trading are known as technical analysis and fundamental analysis. Technical analysis refers to using mathematical tools and certain patterns to help decide whether to buy or sell a currency pair, and fundamental analysis refers to gauging the national and international events which may potentially affect a country’s currency value. Read this Term market to limit the Russians Ruble sell-off.

From a technical angle, 105.80 acts as the nearest resistance (weekly chart).

Bitcoin Outlook following Russia-Ukraine Conflict

Bitcoin and the leading cryptocurrencies were hit when the news of Russia invading Ukraine broke. Grayscale Bitcoin Trust (BTC) is widely expected to be knocked lower following the crisis.

Bitcoin mining may have a direct impact on the BTCUSD.

source: statista

Russia is currently the world’s third-largest bitcoin mining hub. Approximately 11% of bitcoin mining takes place in Russia, the United States is in first place with 35% (approx.), according to statista.

The fact Russia is among the biggest bitcoin mining countries, any tension in the region may have a negative influence on the cryptocurrency. When the invasion was announced, BTC dropped by +10% (approx.), sinking the rest of the leading cryptocurrencies with it.

It is interesting to observe that some altcoins as well as tokens that were built on BNB (Finance Smart Chain) blockchain or ETH for example were unaffected. It may suggest that a significant portion of the most liquid cryptocurrencies are traded via algorithms.

Crypto Bots and Mass BTC Liquidations

Although the Transactions per Second (TPS) is limited in bitcoin when compared to Solana for example, it has been estimated that between 70% and 80% of crypto trading volume is due to bots. We assume that arbitrage bots are responsible for the plunge in today’s session.

According to Coinglass, since 02:00 am over $250 million BTC long positions were liquidated. Most of the buy trades were liquidated in Okex, according to Coinglass.

source: Coinglass

Buying the dip, following the tension between Russia and Ukraine, may appeal to some investors. Buying on dips is a known trading strategy. The main concern under the current circumstances is mass BTC liquidations from Russian and Ukrainian investors.

In 2021, it was reported the Ukraine official held approximately $2.6 billion in cryptocurrencies. The public may hold a greater amount. As restrictions are placed on ATM withdrawals and uncertainty on the future of Ukraine, mass liquidations may sustain the selling pressure on bitcoin.

source: opendatbot

Increased sanctions on Russia may also trigger mass liquidation in Russia. Liquidations may be carried out in black markets, such as Hydra, a well-known marketplace in the darknet. Users can liquidate bitcoins in exchange for physical cash.

As a result, the crypto fundamentals are not playing a role, as strong as they may be. Cardano (ADA) is a good example of it. Despite the rise in transactions, Cardano is trading well below 80 cents, in tandem with a broad weakness in the top cryptocurrencies.

There were early indications that Solana (SOL) was mildly bearish, discussed in our prior analysis of the cryptocurrency.

The selling may only bottom once clarity is provided on the upcoming sanctions and the outcome of the invasion.

Russia may attempt to use stablecoins to bypass the sanctions. Stablecoins, such as USDT (Tether) or USDC (USD Coin), are very popular. Paying attention to these stablecoins trading volumes, inflows and outflows (mainly Tether) may provide some guidance.

Russia’s central bank is developing its own cryptocurrency, however, the testing is only in phase one. The odds of the Russian digital ruble going live within the next several days or weeks is very low.

Summary

Based on the above, it may take more time for the bitcoin selling to end, which is dragging other cryptocurrencies lower. The fundamentals of the cryptocurrencies appear to be irrelevant at this stage. Crude oil (Brent) reached its weekly resistance. If a coordinated action is made to tap the strategic reserves, some retracement may be seen.