US-Russia tensions spur Bitcoin, but is it a risk-on or risk-off asset?

BITCOIN surged past $94,000 on Tuesday, briefly touching a record high of $94,068.75, as geopolitical tensions between Ukraine and Russia escalated following Russian President Vladimir Putin’s stark warning about the threshold for nuclear weapon use.

While stocks initially sold off on the news, Bitcoin advanced further, underlining its unique position as both a risk-on and risk-off asset.

The digital asset’s rally reflects its growing appeal as a hedge during times of geopolitical uncertainty. Investors, wary of potential currency instability and economic fallout, have turned to Bitcoin as an alternative store of value.

At the same time, its continued rise amid broader equity market recovery highlights its speculative nature, thriving on risk appetite during periods of optimism.

This duality - Bitcoin’s ability to behave as both a haven asset in crisis and a speculative asset in bull markets - makes it a standout in global markets.

Its role as a risk-off asset was evident during the regional banking turmoil of early 2023. As confidence in the traditional banking system faltered, Bitcoin outperformed, with its decentralized nature offering a refuge from systemic vulnerabilities.

Similarly, geopolitical shocks like the current tensions in Eastern Europe often drive Bitcoin’s appeal as investors look to protect wealth from potential currency debasement or sanctions-driven restrictions.

Yet, it also embodies risk-on dynamics, thriving in liquidity-rich environments when investors are willing to chase high-growth opportunities.

Its extraordinary rally during late 2020 and early 2021, driven by institutional adoption and pandemic-era monetary easing, exemplifies this behaviour.

During that period, Bitcoin became a speculative darling, drawing comparisons to high-growth tech stocks as it benefitted from an expanding money supply and low-interest-rate policies.

Understanding the crypto’s dual identity requires examining its core attributes.

As a decentralized digital asset with a fixed supply of 21 million coins, Bitcoin is often likened to digital gold—a hedge against inflation and a safe haven during market turmoil. This fixed supply contrasts sharply with fiat currencies, which can be subject to aggressive monetary expansion, as seen in recent years.

However, Bitcoin’s price volatility and relative immaturity as an asset class tether it to the speculative side of financial markets.

While its underlying technology and decentralization offer long-term value, its short-term price movements are often driven by sentiment, momentum, and macroeconomic liquidity. This speculative nature aligns it with risk-on behaviour, making Bitcoin a preferred asset during periods of bullish market conditions.

The interplay between Bitcoin’s risk-on and risk-off roles is increasingly influenced by macroeconomic trends.

In the US, the potential return to rising inflation under a Trump administration—spurred by increased infrastructure spending and protectionist tariffs—could elevate Bitcoin’s appeal as an inflation hedge.

Simultaneously, in the UK, renewed inflationary pressures under Labour’s increased public spending agenda could further position Bitcoin as an alternative to depreciating fiat currencies.

The cryptocurrency’s unique ability to adapt to varying market conditions underscores its growing role in diversified portfolios. While its risk-on characteristics make it an attractive choice for high-growth periods, its risk-off appeal shines in times of crisis, providing a potential hedge against systemic risks.

I believe that as Bitcoin continues to mature, investors who understand and embrace this duality stand to benefit most from its dynamic potential.

Those who delay risk being left behind, as Bitcoin’s capacity to straddle both risk-on and risk-off environments cements its status as a cornerstone of contemporary financial markets.

Nigel Green, deVere Group CEO and founder

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