Bitcoin wilts as Russia-Ukraine tensions push gold to 8-month high

The wait for the crypto community's supposedly seminal moment when bitcoin flips into a risk-off asset continues as the leading digital asset faces selling pressure amid escalating tensions between Russia and Ukraine.

Bitcoin fell over 7% to $40,500 on Thursday, registering its largest single-day decline since Jan. 21, as reports of Ukrainian forces and pro-Moscow rebels exchanging fire in eastern Ukraine saw investors ditch risky assets for safe havens like gold.

While gold rose over 1% on Thursday, hitting an eight-month high of $1,902 per ounce, the S&P 500 took a beating along with cryptocurrencies, falling over 2%.

"Wall Street has gone full de-risking mode and bitcoin is paying the price. Fears over geopolitical concerns and potentially aggressive central bank tightening has cryptos across the board in freefall," Edward Moya, senior market analyst at Oanda, said.

"A month ago, no one wanted to touch gold. Now gold has suddenly become the flavor of the month, now that investors are scrambling for safe havens as geopolitical risks intensify and fears grow that the central banks might go overboard with tightening monetary policy," Moya added.

The crypto community has long hailed bitcoin as an asset to hold during economic or geopolitical issues worldwide. However, the narrative has yet to materialize into reality, with the cryptocurrency continuing to move in lockstep with growth-sensitive risk-on assets like equities.

"Bitcoin/crypto is acting more like high growth tech assets. Just like Nasdaq is filled with Web 2, it's almost as if the Web 3 narrative has pegged crypto to act similar to the Nasdaq in less certain environments," Ben Lilly, a crypto economist at Jarvis Labs, told CoinDesk in a Telegram chat.

While increased institutional participation since the March 2020 crash has legitimized bitcoin as an asset, it has made the cryptocurrency more sensitive to risk-off/risk-on trends in traditional markets.

"BTC is caught in broader market crosscurrents right now because of its increased institutional ownership," MacroScope, a Twitter feed focused on institutional trading and asset management, tweeted.

Analysts foresee more pain for bitcoin if the geopolitical tensions escalate. "Bitcoin is the ultimate risky asset, and a Ukraine invasion would keep crypto selling pressure going another 10-15% over the short-term," Oanda's Moya said. According to the latest reports, Russia is withdrawing military forces from near Ukraine. The futures tied to the S&P 500 were up 0.5% at press time, while bitcoin was up 0.6% at $40,700.

Some observers expect Bitcoin to outperform the yellow metal over the long run. "Over the full cycle of a sustained bull move in gold, BTC should massively outperform it," MacroScope tweeted.

Gold led bitcoin higher in 2020. The yellow metal surged from $1,500 to a new record price of $2,075 in the five months to August 2020. Bitcoin followed suit in the final quarter, moving to fresh lifetime highs above $20,000.