Coinbase Says Crypto Markets Resilient After Russian Invasion of Ukraine

Crypto markets have been reasonably resilient following Russia's invasion of Ukraine, however it will be difficult to sustain the current performance given the shock to the broader global financial system, Coinbase said in a report on Thursday.

• The key performance drivers for the crypto markets became “more entangled” in February, as the escalation of geopolitical tensions has created more uncertainty regarding the possible normalization path to be taken by the U.S. Federal Reserve, said David Duong, Coinbase's head of institutional research.
• De-risking in the months before the attack and the rapid escalation of the Ukraine conflict led to massive liquidations that forced crypto markets to reach a bottom sooner than expected, Coinbase said.
• This coupled with the view that the starts of such large-scale conflicts tend to be buying opportunities and the belief that it would be a relatively short-lived conflict have all contributed to the resilience, the note adds.
• These events may have convinced investors that global central banks would take a less aggressive approach to interest rate hikes, the report says.
• Crypto markets have enjoyed a short-term reprieve, but Coinbase said this was due to technical reasons, adding that “positioning has helped crypto markets retrace, but we think they remain in an unstable equilibrium.”
• The exchange’s medium-term outlook is that the broader market needs more time to stabilize before it can start to perform, which may happen towards the end of the second quarter.
• Prior to the invasion, a quicker recovery was expected, but investors will now likely need more clarity around the timing of peak inflation and the Fed’s rate hike cycle before they are willing to deploy more capital, the note adds.

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