Crypto to the rescue?

As the Russia-Ukraine conflict continues, local currencies in both countries crumble.  Meanwhile, cryptocurrencies are being perceived as a commodity that could potentially offer protection in times of war. This report looks at how the cryptocurrency world reacted to the conflict.

Russians resorting to cryptocurrency 

In response to the invasion of Ukraine, the United States, the European Union, and other countries imposed crippling sanctions on the Russian economy, along with Visa, Mastercard, Revolut, and PayPal cutting-off operations in Russia.¹ The war led to a massive collapse in the value of the ruble and the hryvnia. 

Kicking Russia out of SWIFT implied huge consequences with up to a quarter of Russia’s reserve money being held at foreign central banks.² Russians began forming queues on ATM machines, and the Russian Central Bank imposed capital controls banning foreign exchange loans and bank transfers to outside of Russia.³

In Russia, 9% of the citizens have used or owned cryptocurrency before the war.⁴ Because crypto was already used by a fraction of Russians, it naturally emerged as a store of value to protect assets from the devaluation of the ruble. The daily trading volume between the ruble and bitcoin rose to 3 billion rubles after the Russian invasion on February 24, 2022. ⁵

In the past, cryptocurrency offered an avenue for sanctioned countries to bypass economic restrictions. For instance, from 2019 to 2020, North Korea stole over $300 million worth of cryptocurrency to finance the modernization of its nuclear weapons, which they then laundered through over-the-counter virtual currency brokers in China. ⁶

According to a recent report by Reuters, Russians are looking to liquidate Billions worth of crypto in countries like the United Arab Emirates, which refuse to take sides in the Ukraine conflict. The report reveals that Russians are buying real estate in Dubai using cryptocurrencies. There was also an increase in the number of queries received by crypto firms in the UAE from Swiss Brokers asking to liquidate crypto on behalf of their clients.⁷

Generally, to liquidate cryptocurrency, asset owners connect with a cryptocurrency exchange. Like any other regulated entity, exchanges are obliged to block Russian citizens if they are added to a specific sanctions list or involved in criminal activities. Coinbase announced that it already has around 25,000 criminal Russian addresses blacklisted. Binance also stated that it will comply with international sanctions.^{8 9} Within the Ethereum ecosystem, Opensea and Metamask announced they will block users and territories on the US sanctions list.¹⁰

Cryptocurrency Donations to Ukraine 

The Ukrainian people had to deal with a financial system that was collapsing around them. Bank runs began after the attack had started, and the Ukrainian central bank suspended the currency markets while placing a limit on withdrawals.¹¹ The Ukrainian government began to use crypto by asking for donations in various cryptocurrencies.

On February 26th of 2022, Fedorov tweeted a request for donations in the world’s largest cryptocurrencies: Ethereum, Bitcoin, and USDT (TRC20).¹² In a week, more than $50M in crypto poured in from around the world. Later, the Ukrainian government added DOT and DOGE addresses to allow donations in Polkadot and Dogecoin. 

Donation Addresses of The Ukrainian Government: