Cryptocurrencies and the war in Ukraine

Michaël Renotte I 1:53 pm, 11th March

Did you know that the Russian Ruble is now worth lesser than 1 cent? Specifically, 1 Ruble is now equal to 0,007 Euro. Oh, how the mighty have fallen! At the same time, Bitcoin and other cryptocurrencies have seen a steady rise in value.

Many countries around the world – including the United States and European nations – have instituted sanctions against Russia to pressure the nation into stopping its barbaric attack against Ukraine. As the Ruble loses value and the Russian economy takes a massive hit, another financial market seems to be on the upswing. That market is crypto.

It’s been a significant couple of weeks in crypto. In the midst of Russia’s invasion of Ukraine, millions of Euros in cryptocurrency donations have streamed toward the Ukrainian government and relief efforts, providing a lifeline for those unable to access traditional banks. On the flip side, regulators have worried that crypto provides a way for Russian oligarchs to circumvent sanctions, although no concrete evidence has surfaced that this is the case. Not to mention U.S. President Joe Biden's executive order issued on Wednesday, recognizing the popularity of cryptocurrencies and prompting federal agencies to coordinate their efforts to come up with a regulatory plan (on this subject, read our article Digital Dollar, a Done Deal?).  

What's going on with crypto in Russia? 

Financial analysts and crypto experts around the world are noticing something strange. Just as the Ruble's value started dipping, there were strong upswings in the value of Bitcoin and other cryptocurrencies. The timing isn't coincidental. Experts believe this may be a sign of Russian investors shifting their money into cryptocurrency to protect themselves from the financial ruin that the Ruble seems to be heading towards.

Just last week, Bitcoin almost reached €40,000 – a little more than €7,000 higher from the end of February. In fact, Bitcoin has seen a consistent rise in value by 12% on average in Russia since the beginning of the war. This is saying much, considering that the Bitcoin value actually dropped below 8% during the initial days of the war.

But it isn't just Bitcoin that's seeing so much growth. Other currencies like Solana, Ethereum and Ripple experienced a small rise, too – with some of them seeing at least 2% gains. Apart from this, there is a lot of activity involving Stablecoins – which are cryptocurrencies whose value is dependent on other crypto or fiat money. USDT Tether, in particular, is one of the top valued stablecoins in Russia today. Last week, USDT Tether's transactions amounted to 3.3 billion Rubles – a sign of its continued performance despite all the economic turmoil.

Digital gold

Many investors see cryptocurrency as digital gold. This is because cryptocurrency generally is more stable than fiat currency since its value and performance don't depend on a single country's economy. Additionally, since cryptocurrency isn't governed/regulated by any specific central authorities, Russian investors will experience significantly lesser friction when trading with crypto.

Another reason for the leaning towards crypto – the attitude of crypto companies themselves. Recently, while blocking the accounts of any clients targeted by international sanctions, Binance - the world's largest cryptocurrency exchange - assured Russian investors that they wouldn't "unilaterally freeze millions of innocent users' accounts" and would instead find alternative ways to help Russian investors. Binance also mentioned how banning Russian accounts would defeat the purpose of crypto as an accessible financial tool. These sentiments are being echoed by other crypto companies, including KuCoin, Coinberry and Coinbase.

Reconsidering the assumptions about digital currencies

In an interview by The Register, Rohan Grey, professor at Willamette University and author of the forthcoming book "Digitizing the Dollar: The Future of Public Money in the Age of Cryptocurrency", suggested that the ongoing Ukraine crisis shows some of the assumptions about digital currencies should be reconsidered.

"One of the things you've seen in this crisis is, in part, a repudiation of the strong case for how effective cryptocurrency can be", he said. "In Russia, there's no chance in hell that the entire country is going to be able to switch to cryptocurrency to get around the sanctions being placed on it. The question is only how individuals may be able to use it around the edges".

"The major cryptocurrency exchanges like Binance, Coinbase, and FTX are complying with sanctions", he said, adding that "the role that dark or unregulated currencies can be expected to play is going to remain fairly small".

"I think we saw that actually before Ukraine, with the trucker strike in Canada", said Rohan Grey. "Even when people were able to send Bitcoin, what they weren't able to do is actually cash it out … to make daily transactions".

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