Bitcoin and other cryptocurrencies extended a recovery on Wednesday as recent U.S. sanctions against Russia were perceived to have minimal economic impact.

Bitcoin rose nearly 6% to $38,967 from a near one-month low hit on Tuesday, while altcoins including Ethereum, Binance Coin and XRP added between 4% to 5%.

Total crypto market capitalization also rose 3.8%, standing at $1.85 trillion. Fears of a conflict had knocked roughly $100 billion off markets last week.

U.S. President Joe Biden announced a first wave of sanctions against Russia after the country deployed troops into eastern Ukraine. The blacklist covers two banks, certain elites in the country and most importantly, Russian sovereign debt.

But U.S. officials made it clear that they had held off introducing more damaging restrictions, on hopes of  diplomacy with Russia.

Reuters explains that the sanctions avoided major Russian banks, which have deep-seated roots in the global financial system. They are also not yet as damaging as those imposed during Russia’s annexation of Crimea in 2014.

Sanctions by European countries also shied away from blacklisting big Russian banks. Stricter measures would likely target Russia’s oil supply to Europe.

Analysts said a recovery in global markets today was likely due to the sanctions being less severe than expected, and that investors were still holding out for potential de-escalation.  Mark Haefele, Chief Investment Officer of Global Wealth Management at UBS says-

Markets bounced off their lows after Biden announced
only moderate sanctions, and recognized he intends to minimize any
impact that sanctions could have on the U.S. economy.

Sentiment still cautious

Despite a mild recovery in the market, gains in safe-haven assets showed that fears of a conflict were far from over. Stablecoins, particularly Tether, commanded the largest volumes among cryptos in the past 24 hours, while gold and U.S. Treasuries saw continued demand.

UBS’ Haefele said a worse-case scenario would be disruptions in Russian oil supply, which could further push up oil prices and severely weigh on global economic growth.

The scenario would also ramp up inflation, damaging risk-driven assets, including crypto.

Upcoming U.S. inflation data this week will be another source of volatility for markets. A stronger-than-expected reading could spur further losses on expectations of sharper interest rate hikes this year.

Bitcoin hovered around the $38,000 level on Wednesday, leading a small recovery among cryptocurrencies even as the United States slapped sanctions on Russia over an invasion of Ukraine.

The token recovered 3.5% from a slump to $36,629 on Tuesday, amid some speculation that it had found its bottom. Other tokens, including Ethereum, Binance Coin, XRP and Cardano also rose from multi-week lows hit earlier.

U.S. President Joe Biden announced tough new sanctions targeting Russian banks and elites for beginning an invasion of Ukraine. The move cuts off Russia from Western finances, BBC reports.

Biden threatened more restrictions, but left the door open for diplomacy to avoid an all-out invasion of Ukraine.

The move marks a further worsening in U.S.-Russia ties, which have ravaged crypto markets over the past two weeks. Total market capitalization has slumped $300 billion from a peak hit in Feb, currently at about $1.7 trillion.

Sentiment was still clearly risk-off, with stablecoins, particularly Tether, seeing heavy volumes in the past 24 hours. Gold prices rose, while Asian stock markets sank in morning trade.

Analysts see Bitcoin at a crossroads, as it faces pressure from geopolitical tensions, as well as rising inflation and interest rates. Alex Kuptsikevich, a senior financial analyst at FxPro says-

A further decline could open a direct road to the $30,000 area, where the coin was bought back twice in 2021. Given the changed macroeconomic conditions and the pressure on risky assets, will the crypto remain as interesting at these same levels?

Some bullish signals from Bitcoin

On-chain analysis showed bitcoin holders hit a record high, indicating that demand for the token was still robust. Plan B, the creator of the Bitcoin stock-to-flow model, also said  Bitcoin’s 200-week moving average indicated a bullish trend, advising investors to look past immediate volatility.

Twitter users also pointed out that 2021’s crash had been much steeper. @TheCryptoLark says-

#bitcoin currently 56 days under the 200 day MA with a top to bottom of 51% at peak sell off, in 2021 we spent 82 days under with a 55% top to bottom.

Just some perspective for you. The 2021 crash was worse, and we survived.