A world war could trigger “a huge surge” in Bitcoin price, adoption, says Covalent CEO

Since the outbreak of war in Eastern Europe, Bitcoin and cryptocurrency have been on both sides of the conflict.

In the case of Ukraine, at the start of the war, government officials urged the crypto community to do so donate funds. At the same time, Russia chose a more inclusive approach, including U-turning on its previous plans for a crypto ban and designing a legal framework.

According to the FT, the Bridgewater hedge fund said all of this points to the war being a catalyst for growth in digital assets – more so as it comes at a time of maturing, particularly in terms of institutional interest in cryptocurrencies.

“This near-term dynamic is occurring alongside structural changes in the cryptocurrency markets that we believe are self-reinforcing, as adoption by key institutional investors increases and the surrounding ecosystem deepens.”

NATO Secretary General Jens Stoltenberg warned that the war between Russia and Ukraine could last for many years. In the six months that have passed since the outbreak, attitudes between NATO and Russia, not forgetting the tensions that have been heated between the US and China over Taiwan, show that the threat of world war is a growing possibility.

With that, thoughts turn to the role of cryptocurrencies under such a scenario and whether World War 3 could be a spur for greater adoption and use.

Allied forces attack Russia and China

On June 20, Russian officials demanded that Lithuania lift rail restrictions to Kaliningrad. The Russia exclave is located between Lithuania and Poland, east of Moscow, and receives goods from Russia via a rail route that passes through Lithuania.

NATO member Lithuania had banned the transport of goods between Russia and Kaliningrad due to the enforcement of EU sanctions. The Russian Foreign Ministry responded by saying that Russia has “the right to take actions that protect its national interests.”

Article 5 of the Washington Treaty said that an attack on a NATO member is an attack on all members and could result in “collective defensive measures” against the aggressor.

Fortunately, more than a month later, the incident has not escalated. Nevertheless, this flashpoint showed the potential for tensions to erupt into something much bigger.

Likewise, tensions between the US and China have been further strained following House of Representatives Speaker Nancy Pelosi’s visit to Taiwan on 2 August. Before the visit, in a telephone conversation between President Xi and President Biden, Xi said: “those who play with fire will perish,” according to the Chinese Foreign Ministry.

Despite the warning, Pelosi continued the trip, where she met with members of Taiwan’s Legislative Yuan and the chairman of Taiwan Semiconductor Manufacturing Company (TSMC), Mark Liu.

Commenting on China’s “aggression” ahead of the visit, Pelosi said her defiance of Beijing should be taken as a statement of US support for Taiwan.

“In the face of the Chinese Communist Party’s (CCP) accelerating aggression, our congressional delegation’s visit should be seen as an unequivocal statement that America stands with Taiwan, our democratic partner, as it defends itself and its freedom.”

China responded by imposing sanctions on Taiwan, and stopping the export of certain foodstuffs and natural sand. As well as starting live military exercises around Taiwan, with some exercises happening less than 10 miles from the Taiwanese coastline.

Crypto is a replacement for legacy finance in times of need

With no frame of reference to draw from, it is unclear what might happen to cryptocurrencies in the event of a world war.

At the national level, it has been shown that demand for digital assets tends to increase in times of need. An example of this is hyperinflation in Venezuela, which led to increasing demand for Bitcoin and price premiums. At one point, Venezuelans paid an average of $1,980 (or about 20% at the time) above the spot price.

According to the Center for Strategic and International Studies (CSIS), Venezuelans turned to Bitcoin and other cryptocurrencies for several reasons, including wealth preservation, censorship-resistant overseas remittances, humanitarian aid, security against petty theft, and financial inclusion.

However, what happened in Venezuela is not the same as what could happen during a world war, which could involve the destruction of communication and energy infrastructure on a global scale.

Bitcoin demand is likely to act as a tailwind for the price

By email, CEO of blockchain analytics platform Covalent, Ganesh Swami, shared his thoughts and said that in the event of a world war, several factors are likely to converge to trigger “a huge surge” in Bitcoin price and adoption.

By extension, this effect is expected to lift the rest of the cryptocurrency market as well as investors cycle between tokens to maximize gains.

Swami said that a world war could lead to mass migration of people as they evacuate to safer countries. Then, migrants can turn to Bitcoin to transport wealth “without fear of losing it,” which would not be the case with cash or precious metals.

“Unlike paper currency or gold, which can be easily found, stolen or confiscated, all you need to secretly store your bitcoin is your seed. This increase in usage will affect the price.”

Similarly, another factor in the mix may be the loss of energy security. In this situation, miners would struggle to keep the machinery running and/or mine profitably. Swami said this could cause “the existing supply to plateau” leading to scarcity and acting as a tailwind for the Bitcoin price to move higher.

For now, the world is on standby in anticipation of what happens next.