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Bitcoin rose more than 12% on Tuesday, continuing its rapid rebound as Russia's war on Ukraine continues and the United States tightens sanctions.
According to Coin Metrics, the cryptocurrency last increased 12.5 percent to $44,249.08. This recovery follows a drop in cryptocurrency prices last week as risk assets like as stocks fell off in response to Russia's invasion of Ukraine.
Ether increased by 10% to $2,994.29. Earlier in the day, the crypto asset surpassed $3,000 for the first time.
According to market analysts, the significant spike in bitcoin might be due to a number of factors, including speculators buying the dip, attempts to avoid sanctions, and Ukrainians and Russians wanting to move their money out of their respective nations.
Cryptocurrency to avoid sanctions?
Bitcoin's surge comes as the United States imposes further sanctions on Russia. Washington singled out Russia's central bank, thereby preventing Americans from doing business with it and freezing its assets in the United States.
This comes on top of sanctions targeting oligarchs and Russia's national debt, as well as efforts to isolate the country from the global financial system.
The question of whether bitcoin, which is not owned or issued by a single body such as a central bank, may be used by Russia to circumvent sanctions has raged.
According to veteran investor Mark Mobius, this could be one of the reasons for bitcoin's surge.
"I would argue that's why bitcoin has showed momentum now - because the Russians have a way of getting their money out, getting their wealth out," Mobius, founder of Mobius Capital Partners, told CNBC on Tuesday.
However, the amount of money required for Russia to convert to and from bitcoin may be prohibitively expensive, according to Ari Redbord, head of legal and government affairs at TRM Labs.
"You will see Russia attempt to sidestep the US banking system by turning to cryptocurrency." I believe the problem is... "The liquidity simply isn't there," Redbord said on CNBC's "Squawk Box Asia."
However, bitcoin may be a vehicle for ordinary Russians and Ukrainians to get their money out of their respective countries while their currencies remain fragile.
According to a statement published on Monday by cryptocurrency research firm Kaiko, bitcoin traded at a 6% premium on Binance exchange's Ukrainian hryvnia market. Kaiko further stated that cryptocurrency exchanges are "seeing a boom in both Russian ruble and Ukrainian hryvnia cryptocurrency transactions."
"Until there were no heavy financial sanctions on Russia, bitcoin moved in lockstep with US stock indexes, but these reports, which confirmed real use case for cryptocurrencies in times of crisis, are pushing the price higher," Yuya Hasegawa, crypto market analyst at Japanese exchange Bitbank, told CNBC on Tuesday.
On Sunday, Ukraine's vice prime minister, Mykhailo Fedorov, requested that major cryptocurrency exchanges restrict the addresses of Russian customers.
Binance, the world's largest exchange, said it would freeze any Russians on the sanctions list but would not "unilaterally" block all Russian users' accounts.
Other cryptocurrency exchanges followed suit.
Is Bitcoin experiencing a "watershed" moment?
Over the years, proponents of bitcoin have referred to it as "digital gold," an asset that serves as a safe haven for investors during times of instability or even as a potential hedge against inflation. However, bitcoin has not performed in this manner. Instead, it has been more closely linked to the movement of stock prices, even though inflation remains at multi-year highs and a military conflict rages on. As digital gold has unraveled in recent weeks, so has the argument for bitcoin.
According to Vijay Ayyar, vice president of business development and international at crypto exchange Luno, this could change.
"Bitcoin and cryptocurrencies are probably at a tipping point against the backdrop of global uncertainty and anxiety connected to the Russia-Ukraine issue," Ayyar told CNBC.
"The performance of cryptocurrency shows that it is detaching from traditional markets."
People have also donated cryptocurrency to the Ukrainian army, "showing that crypto is basically a technology that cannot be disregarded," according to Ayyar.
He also stated that a bottom for bitcoin was already emerging as the fight began.
On Monday, Michael Rinko, venture associate at AscendEx, told CNBC that $38,000 was a critical mark for bitcoin.
"For a good margin, more people bought at $38,000 than at any other level above or below," he said.
Hasegawa of Bitbank, on the other hand, warned of further turbulence coming.
"There are still a lot of... potential risks ahead for the market, such as the Russia-Ukraine negotiation falling apart, even more massive air strikes on Ukrainian cities, nuclear threats, and the U.S. jobs report on Friday, so it looks like the next couple of days are going to be a wild ride for bitcoin," Hasegawa said.
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