Cryptocurrencies and the threat versus the act event of geopolitical risk

Abstract

We examine the reactions of the cryptocurrency market to two events that occurred during the escalation of the Russia–Ukraine war in February 2022. Using hourly data, we find that the escalation exerted a negative influence on both liquidity and returns. Interestingly, the actual escalation triggered a more pronounced drop than the threat of escalation shortly before. This contrasts with the stock market, where threats of geopolitical events are found to have a greater impact. Post-escalation, we observe indications of increased demand for cryptocurrencies, potentially as a means to circumvent Western sanctions imposed on Russia or to provide aid to Ukraine.