The crypto market rose on Monday after the Treasury Department imposed new sanctions against Russia's central bank.
"In the past, there has been a strong correlation between traditional assets liquidating and drops in digital assets," said Valkyrie Funds CEO Leah Wald. "However, we aren't seeing that right now and the crucial test is to see whether this pattern holds. If it does, we could potentially be at the tipping point many have been waiting for, where bitcoin and other coins have perhaps become mainstream."
The sanctions unveiled by the Biden administration would effectively prohibit Americans from doing business with the Russian central bank and freezes assets within the U.S.
The moves highlight the role crypto can have in military conflict. The young asset class has never had the opportunity to show its potential significance in that type of environment before, though its proponents have often emphasized it as part of their bull case for bitcoin.
Since Thursday, when the invasion by Russia began, transactions on centralized bitcoin exchanges in both the Russian ruble and the Ukrainian hryvnia surged to their highest levels in months, according to crypto data company Kaiko.
"Volume for both RUB and UAH trading pairs increased far more quickly than volume for other pairs, such as BTC-USD, which suggests the crisis is directly influencing trading behavior," according to Kaiko.
Michael Rinko, venture associate at AscendEx, said $38,000 is the number to watch.
"This is one of the biggest accumulation phases," he said. "You can tell the cost basis of every single holder. More people bought at $38,000 than at any other level above or below for a good margin. It's a very key level because it could be support on way down but also resistance on way up."
He also agreed that the conflict is highlighting the importance of the borderless and censorship-resistant qualities of bitcoin, but said it isn't why cryptocurrencies outperformed the broader markets Monday.
"This move up in crypto today may be reflecting rate hikes getting priced out," Rinko said. "We're increasingly skeptical about the Fed's ability and willingness to aggressively hike amid this uncertain geopolitical backdrop."
Still, he added, that bitcoin and other cryptocurrencies are still in an early phase where prices are driven primarily by narrative and not to underestimate the strength of the humanitarian case for bitcoin.
The Ukraine government has raised more than $10 million in cryptocurrency donations as of Sunday, according to blockchain analytics firm Elliptic. Total donations made in crypto to the Ukrainian government and NGOs supporting the military stood at about $16.7 million as of Sunday.
On Monday, officials from Russia and Ukraine gathered at the Belarusian border to discuss a potential end to the fighting between the two sides. Officials from both countries said there could be more negotiations to come.
That first round is the "paramount event of the week," according to Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank.
"It could determine bitcoin's direction for the short term," Hasegawa said "If it fails, the price could extend the Sunday loss and break below $37,000."
Hasegawa added that bitcoin's target range for the week is between $34,000 and $43,000.