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How political unrest affects cryptocurrency?

Jan 08, 2020

The political unrest and change are currently taking place in many parts of the world. A series of high-profile events continue unabated around the globe. Brexit in the UK, an impeachment trial in the United States, protests in Hong Kong, India, Iraq, trade war and economic crises worldwide. We have stepped into 2020 accompanied by media headlines predicting a global economic recession.

Although it is difficult to quantify the ways in which political instability can affect the financial systems, there is doubt about the interdependent nature of finance, government, and politics.

But what effects the political upheaval has on cryptocurrency? Since Bitcoin and digital currency is a relatively new phenomenon, the effects of political events on cryptocurrency have not been closely studied. However, by the year 2020, many experts and analysts are attempting to rectify such an omission.

Apparently, Bitcoin and other cryptocurrencies are either risk-on or risk-off assets depending on the place where you live. At bottom, Bitcoin can be used as a safe place to store value in the event of political upheaval, for example, when fiat currency is swiftly losing value. This is how cryptocurrency is connected to political instability. In countries that are enduring economic crises (for instance Zimbabwe, Venezuela), the popularity of cryptocurrency such as Bitcoin is increasing. Indeed, this may be an easy option for protecting assets.

Political uncertainty usually results in a loss of confidence in the governing authorities. Financial systems are vulnerable to political instability which also generally leads to a decrease of the value of state currencies. It is in these conditions that alternative currencies rise in popularity and investors give preference to assets that are not controlled by one party.

The value of cryptocurrency will depend on how we react to the events – our emotional response may dictate the value of digital coin in the wake of political instability. In times of uncertainty, although we may think that we do rational and logical things, what we actually do is fear and panic. This causes the price to plummet. Analysts assert that when political drama is taking place in states with relatively stable economies and currencies, the effects of political events are not greatly impacting the crypto markets. International investigator and due diligence expert L. Burke Files expressed the opinion that events in countries with troubled economies could have a remarkable impact on the price of cryptocurrency. One of the reasons is that crypto is usually used as a tool for capital flight from countries with struggling economies.

Economic crises, political unrests, and corrupt governments drive away wealth. There are different ways how capital can escape the country and crypto is one of the options wealth can leave the state. Apparently, it also impacts crypto value since political instability is just one of many supply and demand variables that affect the price.

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