Bitcoin Moves Lower Amid Fears of Stricter Regulation

Key Insights

• Crypto markets turn lower as sanctions on Russia will trigger strong regulatory response in the crypto segment. 
• Markets will remain sensitive to geopolitical news. 
• Expect significant volatility over the weekend. 

Yesterday, we discussed whether traders have started to view Bitcoin as a safe-haven asset amid volatility in the financial markets. Today’s trading action shows that the cryptocurrency market is driven exclusively by the changes in market sentiment, and a simple safe-haven-asset vs. riskier asset paradigm is not working.

Traders Fear That Sanctions on Russia Will Trigger Regulatory Pressure on Crypto

The U.S. Justice Department has already launched KleptoCapture task force to prevent Russia from avoiding sanctions. Similar measures will be taken by the EU.

At this point, most analysts believe that the crypto market is too small to help Russia even if the country wanted to avoid sanctions via crypto. In addition, the “bypass route” would be challenging, as any sanctioned entity would have to go from Bitcoin or Ethereum to stablecoins like USDT or UST and then to fiat.

However, this would not stop regulatory pressure on crypto, which has been steadily growing before the imposition of harsh sanctions on Russia. The recent events served as a catalyst, which will speed up regulatory activities.

Increased Regulation Is a Material Threat to Crypto Markets

While negative scenarios like bans on proof-of-work mining have not materialized, increased regulatory activity could decrease the amount of capital going into crypto and hurt existing projects.

At this point, it is hard to evaluate the scope of the potential regulation, which will be released in 2022. In this light, traders should expect volatility in the medium term, as the market will be sensitive to any regulatory news.

In the near term, the crypto market will likely remain focused on negotiations between Russia and Ukraine. The second round has been completed on Thursday without big results, but more negotiations are expected next week.