The Fallout: Why the Onset of War Triggers a Crypto Crash
When geopolitical tensions escalate into armed conflict, the global financial system reacts with immediate volatility. Almost invariably, the cryptocurrency market experiences a sharp decline. While digital assets are often touted as "digital gold" or a hedge against inflation, the immediate onset of war tells a different story.
The Flight to Safety
The primary driver of a crypto crash at the outbreak of war is the "risk-off" sentiment. When uncertainty spikes, institutional and retail investors rush to liquidate volatile assets to preserve capital. Capital flees from high-risk assets—like cryptocurrency and tech stocks—and flows into traditional safe havens: the U.S. Dollar, Gold, and government bonds. Because crypto is still considered a speculative asset class by the majority of the financial world, it is the first to be sold.
Liquidity and Cash Needs
War creates immediate economic chaos. Investors and businesses often face a sudden need for cash liquidity to navigate sanctions, supply chain disruptions, or personal financial insecurity. Converting large holdings of cryptocurrency into fiat currency (usually dollars) during a market dip ensures access to usable funds, further driving the price down.
Systemic Fear
Despite the decentralized nature of blockchain, market psychology remains human. Fear, Uncertainty, and Doubt (FUD) spread rapidly across social media and news networks. In the face of physical danger and global instability, the promise of decentralized finance loses its appeal compared to the immediate security of holding cash or physical assets.
In summary, while cryptocurrency may eventually serve as a neutral financial tool in the long run, the onset of war typically exposes its current correlation with the broader stock market, resulting in a sharp, panic-driven crash.
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