Why are prices falling instead of rising amid the geopolitical crisis?

 Author: Lightning Huang Shiliang; Source: Lightning HSL

Isn't it said that crypto is a hedge against geopolitical crises? Now when there is a war, the price is falling. What's going on? Recently, Iran and Israel have been attacking our wallets back and forth. It was not like this n years ago.

The most famous geopolitical event that caused a sharp rise in the price of Bitcoin was the Cyprus financial crisis in 2013. That was in 2013. Because Cyprus banks restricted depositors from withdrawing money, various news in the currency circle said that local people bought Bitcoin because they were worried about the collapse of the banking system, causing the price to rise by more than 50% in a very short time.

In 2015, due to the Greek debt crisis, the Greek government implemented strict capital controls, including daily withdrawal amounts and transfer amounts. There were also a lot of articles in the currency circle at that time saying that Greek people adopted Bitcoin in order to break through the control, and it rose by 30% in a very short month. This incident also helped the cryptocurrency market to get out of the deadly bear market.

But after that, I rarely saw any rigorous evidence that geopolitical crises caused the price of cryptocurrencies to rise.

But I often see related articles, but I think the causal relationship is not clear.

I think a reasonable explanation is this.

In the past, the market value of the cryptocurrency market was small, and the market was small. Just by telling stories and bragging, one or two big players would come in, and the price of the currency would really rise.

In 2015, Bitcoin was only a few hundred dollars a piece, and the total market value did not exceed 10 billion US dollars. Because a large number of coins were not mined, and millions of coins were lost in the early days, the real circulating market value was less than 5 billion US dollars.

At that time, bragging and using geopolitical crises for advertising were indeed easy to cause a rise.

So, the core reason why Bitcoin rises due to geopolitical crises is that the narrative of Bitcoin can be used to advertise through geopolitics. It is not really because people in crisis spend money to buy coins that the price rises.

Think about it, places where geopolitical crises occur are often poor countries. How much money can they have to buy coins? Greece's GDP in 2015 was $195.684 billion (US$195,683,527,003). This is the total GDP. How much money do you think is really available to buy coins?

Later, the overall market value of the currency circle rose. The plate was too big, and bragging and pulling the plate did not work.

The rise of assets mainly depends on confidence, and the same is true for stocks. The valuation of assets actually corresponds to the confidence of investors in them.

This includes confidence in the benchmark itself, such as believing in its technology, believing that it fits the trend, and believing that it is more powerful than its peers.

Another source of confidence comes from the overall environment, such as whether it is a bull market cycle.

For the overall environment, if the overall global economy is good, then the valuation of risky assets tends to be higher. After all, only when the global economy gets better, everyone has money to buy coins.

Now that Iran and Israel are at war, it still has a great impact on the global economy, because the Middle East is the world's most important oil-producing region.

If a real war breaks out, everyone will worry that the world economy will become bad, which will trigger a decline in confidence in risky assets such as stocks and coins, and prices will fall.

But I think that the world is still very peaceful overall, and the trend is still mainly peaceful, but netizens and self-media like to promote and magnify the influence of local wars.

The benefits of war are becoming more and more limited, and the main benefits have become political capital, not economic benefits. Think about 100 years ago, wars were all for survival resources, and they were really desperate at that time.

Now survival resources are no longer a problem for humans, and the main disputes are about concepts, ideals, religions, etc. Look at the messy wars in the Middle East now. The most important weapon is the camera, which takes videos and puts them online to win political discourse power and donations from netizens. In my opinion, these small war videos are all scamming donations, sympathy, and the Virgin Mary. In the future, when fighting, all the wifi on the battlefield should be turned off, and let them fight on their own. Those who like to watch the excitement can go in and watch it if they have the ability, and they are not allowed to watch it online.

I have to sigh here that our country is still very peaceful in managing geopolitical crises. If we want to fight, we only use cold weapons. It would be great if this could be extended to global crisis management.