Could Turmoil In Ukraine Ignite a Bitcoin Price Explosion?

News outlets reported Monday that Ukrainian tensions caused the Dow's worst day in a month.

Ukraine's Economy is in Trouble

Ukraine is limiting bank withdrawals to $100, their currency is at risk of devaluation, and they have instituted other capital controls. The tighter the controls the riskier it is for Ukrainians to stay in the hryvnia. In addition to the Ukrainians directly affected, economies around the world are being shown the kind of wealth destruction banks and governments can wreak on traditional financial assets.

Cyprus Faced Severe Economic Troubles in 2013

One year ago Cypriot banks imposed a bank deposit levy on depositors with more than 100,000 euros and Cyprus put capital controls in place such as daily withdrawal limits, restricted transfers overseas, and a ban on check cashing. These measures were taken to avoid a feared collapse of Cypriot banks.

See also: Bitcoin's Shocking Resilience & Achilles' Heel

ABC News reported “terrified” European and Russian investors began buying up bitcoins. Bitcoin shot from $13.00 at the beginning of the year to $266.00 in early April. When capital controls are imposed by the state bitcoin's strengths shine. It cannot be taken only given so the state cannot take bitcoins from people without coercing citizens into giving up their bitcoins. Bitcoin can be sent anywhere in the world in minutes. Bitcoin enables investors to purchase dollars, real estate, gold, invest in businesses, skirting capital controls after acquiring bitcoin.

Could Ukraine's Turmoil Ignite another Bitcoin Price Explosion?

Bitcoin's market cap of $8 billion is about eight times larger than it was during the Cyprus crisis. However, Ukraine's Gross Domestic Product is about eight times the size of Cyprus and has about 45 times more people. Bitcoin is also more well known and some Ukrainian protestors are already requesting bitcoin.

Wealthy individuals in other troubled countries are probably eyeing the Ukrainian situation and wondering what they should be doing to protect their assets. The big downside of bitcoin for wealth preservation is bitcoin's volatility. After rising to $266.00 in April last year, bitcoin plunged to a low of $50.00 and then ended the year at $796.00. That makes for a frightening ride for even seasoned investors.

The requisite elements for a Ukrainian caused bitcoin price spike are in place. The outstanding question is will investors and Ukrainians believe bitcoin's benefits outweigh the risks posed by using a new currency?

Disclosure: At the time of this writing David Smith has a long bitcoin position.