Dynamic effect of geopolitical risk on major cryptocurrencies amid the Russia–Ukraine war

Abstract

Geopolitical crises pose major risks to financial stability, but their implications for digital assets remain poorly understood. While prior studies suggest that cryptocurrencies may act as hedges or highly volatile speculative instruments during periods of uncertainty, the evidence remains inconclusive. This study examines how major cryptocurrencies reacted to geopolitical risk during the Russia–Ukraine war by employing the quantile-on-quantile regression (QQR) method on daily data from February 1 to August 8, 2022. The results reveal heterogeneous and nonlinear effects: Bitcoin (BTC) and Ethereum (ETH) exhibit partial hedging properties under moderate geopolitical risk, whereas alternative cryptocurrencies such as Binance Coin (BNB), Cardano (ADA), and Dogecoin (DOGE) display heightened vulnerability. Stablecoins exhibit contrasting roles, with USD Coin (USDC) acting as a safe haven, whereas Tether (USDT) consistently loses value under periods of uncertainty. These findings underscore that the safe-haven potential of cryptocurrencies is conditional on both market states and the type of asset, highlighting their asymmetry in times of crisis. By clarifying the dynamic role of cryptocurrencies during geopolitical shocks, the study contributes to the debate on whether digital assets enhance diversification or amplify instability, offering practical insights for investors and policymakers seeking resilient risk management strategies.