The diplomatic efforts to end the war between Russia and Ukraine visibly gained momentum on Monday. American, Ukrainian, and European officials outlined the foundations for a possible ceasefire and a security framework for after the war.
These developments are one of the most important diplomatic steps since the beginning of the conflict. The positive signals ensure that investors reassess the geopolitical risk in global markets, including cryptocurrencies.
For crypto, which recently experienced sharp declines due to a global risk-off sentiment, a ceasefire could change sentiment – but with some important caveats.
Diplomatic momentum is growing for a Russia-Ukraine ceasefire
Negotiators from Ukraine, the US, and key European allies met this week in Berlin for intensive talks aimed at ending hostilities and preventing a new conflict.
Involved officials said that significant progress has been made, and that there is agreement on most components of the proposed plan.
US officials confirmed that Washington has agreed to support meaningful security guarantees for Ukraine as part of a peace settlement. This fulfills Kyiv's long-held desire for protection against future attacks.
According to people involved in the talks, negotiators now agree on about 90% of the framework.
However, there are still disagreements over the territorial situation in Eastern Ukraine, particularly in the Donetsk region.
European leaders strengthened the diplomatic process by approving plans for a Europe-led multinational force. This would help stabilize Ukraine if the ceasefire holds. The proposal also includes a US-backed monitoring and control system designed to oversee compliance with the ceasefire and to intervene in case of violations.
Public opinion in Ukraine remains a barrier to negotiations. Polls cited by Reuters show that most Ukrainians are against major territorial concessions or limiting military capabilities unless there are solid and enforceable security guarantees.
Fighting continues despite negotiations
Even though diplomatic steps forward have been made, military operations have not stopped. On Monday, the Ukrainian army again carried out drone strikes on Russian oil infrastructure in the Caspian Sea, disrupting production at key locations for the third time in a few days.
The attacks show that Kyiv wants to put Russia under economic pressure by hitting their energy revenues as long as the negotiations are not completed.
Ukraine also claimed that it hit a Russian Kilo-class submarine in the port of Novorossiysk with underwater drones.
If confirmed, this demonstrates the growing sophistication of Ukraine's asymmetric maritime capabilities. Independent verification of this claim is still limited, and Russian officials deny any damage.
What a ceasefire could mean for the crypto market
1. Less demand for safe-havens, better risk appetite
A credible ceasefire would reduce one of the biggest global risks for the markets. In markets where risk sentiment is very important, such a reduction in tensions could cause the following:
Broad recovery for risky assets, which reduces demand for traditional safe havens like US Treasury bonds and the US dollar.
Support for assets like Bitcoin and major altcoins, as investors shift back to riskier investments.
Lower implied volatility in equity and digital asset markets.
The mechanics of this are simple: if geopolitical risk decreases, money that was previously withdrawn for safety reasons can flow back into risky markets. This could lead to increases in Bitcoin and Ethereum prices. A greater risk appetite could also help altcoins, as these often perform better during recovery movements.
A prolonged ceasefire could also impact commodity markets, especially if it reduces pressure on energy prices. Lower or stable global energy prices could:
Inflation expectations in Europe and beyond are tempering.
The pressure on central banks to keep policy restrictive is decreasing.
Ensuring looser liquidity conditions, which historically leads to higher valuations of risky assets like cryptocurrencies.
However, this effect is not direct or automatic. It depends on how quickly markets expect structural changes in the energy market and central bank policies.
What could limit the crypto recovery
Although a ceasefire may reduce geopolitical risk, it does not affect all the macroeconomic headwinds that have hit the crypto markets in recent months:
Ongoing uncertainty at central banks: If the Bank of Japan continues to tighten and US data continues to point to persistent inflation, liquidity may remain tight. This reduces the likelihood of significant increases in risky assets.
Positions in the derivatives market: Leverage has often been the catalyst for previous declines in crypto. Short recoveries can create new positions and high funding rates, which can then be reversed if macroeconomic forces take over.
Liquidity situation: A ceasefire is positive news. But for a sustained rise in asset prices, a lot of liquidity is needed. If there are no clear indications that financial conditions are easing, crypto-assets may only show short-lived recoveries.
An agreed ceasefire between Russia and Ukraine would be a major change in geopolitics and initially support risky assets like cryptocurrencies.
But the overall effect on the crypto market largely depends on how the ceasefire goes along with liquidity, expectations around central bank policies, and global risk appetite.
Shortly after the news, crypto could show a significant recovery, especially due to positive sentiment and adjustments of risks.
In the medium term, the trend will likely depend on whether the ceasefire actually leads to less inflation and more liquidity — these are the key macro factors that have influenced digital assets in recent months.
