Investors Hoping Crypto Can Withstand Russia-Ukraine Fallout

Global investors are flooding cryptocurrency funds and companies with investment, hoping the emergent sector may be more resilient than established financial instruments against market fluctuations stemming from the Russia-Ukraine conflict.

In the last three weeks of February, venture capital (VC) buyers invested roughly $4 billion in the crypto space, according to research firm Fundstrat in its latest note to clients.

Become a Subscriber

Please purchase a subscription to continue reading this article.

Subscribe Now

This recent investment by VCs tracks with weekly inflows for 2022, in which investments in the crypto industry have averaged between $800 million and about $2 billion per week, according to Fundstrat data.

Meanwhile, new crypto funds raised nearly $3 billion over the last two weeks, which is the most this year.

"Crypto native companies are still raising at very high valuations and many funding rounds are still oversubscribed," said George Melka, Chief Executive Officer at crypto broker SFOX. "In fact, crypto startup valuations are probably the highest I've seen."

For example, Bain Capital Ventures, a unit of Bain Capital, has announced that it will launch a $560 million fund that will focus exclusively on crypto-related investment.

"The conflict in Ukraine has weaponized our financial and digital economy and really accelerated blockchain adoption," said Paul Hsu, Founder and CEO of Decasonic, a $50-million hybrid fund investing in both digital assets and venture capital. And confirming Melka’s statement regarding oversubscription, Hsu added that there's demand of up to $200 million to invest in his fund.

"We are seeing a re-allocation to crypto and blockchain away from real estate and bond funds, for instance, because of higher interest rates,” Hsu said.

U.S. investors pulled a net $7.8 billion out of bond funds in the week of March 9, according to Refinitiv Lipper data, while a net $707 million was pulled from real estate funds during the same timeframe, after posting outflows of $1.15 billion the previous week.

As of now, crypto-curious investors seem to have good reason to believe crypto may weather the Russia-Ukraine crisis better than traditional risk-on assets such as stocks. For instance, in February, Bitcoin and Ether rose 12.2% and 8.8%, respectively. And, after reaching a low on February 24 when Russia invaded Ukraine, the digital currencies have gained 14.5% and 13.5%, while the S&P 500 rose just 3.2% over the same period.