Cryptocurrency in war: a double-edged sword?

Abstract

This study examines the short-term impact of the Russia-Ukraine war on the high frequency digital<br/>asset markets. We apply an event study approach, focusing on the initial months of the war and<br/>analyse hourly returns of cryptocurrencies, DeFi tokens, and metaverse tokens. We find that<br/>negative war-related events have both an immediate and sustained impact on cryptocurrencies<br/>and DeFi tokens, likely due to a series of negative events leading to positive returns. In contrast to<br/>stocks and commodities like gold, cryptocurrencies and DeFi tokens exhibit positive and significant<br/>cumulative returns following negative war-related events. This suggests that these assets could<br/>serve as diversifiers or hedges against such events, similar to the ‘political property’ observed for<br/>oil. Importantly, these findings provide preliminary insights into the ongoing Russia-Ukraine<br/>conflict and help to understand the impact of military conflict on cryptocurrency markets more<br/>broadly.