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What Does Conflict in Ukraine Mean Long-Term for Crypto?
While it may be localized on a military level, the armed conflict between Ukraine and Russia is likely to have ramifications for much of the world. For one, economists are already predicting that it will precipitate a sharp increase in inflation, not least because Russia is the world’s largest exporter of natural gas and the second-largest exporter of oil. And there’s also the fact that hundreds of thousands, if not millions, of people will be displaced from Ukraine, confronting the world (and particularly Europe) with yet another refugee crisis.
And then there’s crypto. Sure, the health of the cryptocurrency market and industry may not be a high priority right now in the grand scheme of things, but there’s little doubt that the ongoing conflict will create repercussions for Bitcoin and its rivals. In fact, it’s arguable that it has already created repercussions, not least because the cryptocurrency market responded to the initial news of a Russian invasion on February 24 by falling by more than 10% in a day.
However, while the possibility of Russia evading sanctions via crypto may end up increasing Western regulatory scrutiny of the industry, the conflict may actually have some positive effects for the market. This is largely because it provides a case study in how Bitcoin and other cryptocurrencies can actually aid positive causes and empower individuals when other options break down.
Crypto Provides Real-World Utility to Those Who Need It
Looking solely at price action and the short-term picture, the market has reassuringly stabilized (as of writing) since the initial invasion.
On February 24, the price of bitcoin fell by as low as $34,740, as investors took flight from riskier assets. Russia’s incursion into Ukraine undoubtedly created a considerable amount of uncertainty at the time, but given the resistance of Ukrainian forces and the sense that sanctions against Russia weren’t quite as bad as feared, the situation has since recovered for BTC (and other assets). Indeed, since falling to $34,740, BTC has risen by an impressive 25%, to around $43,500.
Of course, the market could decline again if the situation suddenly deteriorates, whether by an escalation of fighting or by evidence that sanctions are having a significantly negative impact also on Western nations. But for now, markets are doing okay under the circumstances, while there are numerous other aspects of the conflict that are actually positive for crypto.
Most notably, cryptocurrency has once again proven itself to be an ideal medium for crowdfunding and charity. According to the most recent count from analysis firm Elliptic, around $24.6 million in various cryptocurrencies has been sent to the Ukrainian government and NGOs supporting it.
This figure is the result of 26,000 separate donations, with one donation — in bitcoin — worth $3 billion and another (also in BTC) worth $1.86 million.
Source: Elliptic
Not only do such donations provide a welcome boost for the Ukrainian government and military, but they provide a perfect example of how cryptocurrency can help flatten barriers when it comes to international transfers and action. In other words, cryptocurrency is a bridge between different peoples and nations, one that can’t easily be demolished.
Indeed, this is the overarching message provided by other crypto-related news coming out of Ukraine. That is, certain individuals have reported that bitcoin and cryptocurrencies were essential in them being able to escape Ukraine before fighting reached their areas. Even though withdrawals via bank ATMs had been suspended, some people were able to transfer their BTC/crypto to hot wallets and use it to fund their travel to other parts of Europe.
Source: Twitter
Other stories relate how at least one person within Ukraine has used BTC to buy a car (to help them travel out of the country), while more than one member of Crypto Twitter has used bank runs and blocked ATMs to make the point that cryptocurrencies provide the ability to escape financial restrictions and, by extension, war-torn countries imposing such restrictions.
Basically, the Ukrainian conflict provides support for the oft-repeated argument that cryptocurrency ownership increases personal sovereignty and freedom. And assuming that increasing numbers of people within Ukraine turn to Bitcoin and other cryptocurrencies during the crisis, the latter could help popularize the idea of crypto as a liberatory tool.
How the Ukraine-Russia Conflict Could Be Bad for Crypto
Given that the Russian ruble has fallen by as much as 25% since sanctions were imposed on Russia, it’s possible that we may also witness a significant rise in Bitcoin and cryptocurrency ownership in the country. As it happens, bitcoin has overtaken the ruble in terms of each currency’s respective market cap, and with roughly 11% of the Russian adult population already owning cryptocurrency, this figure could rise sharply as people look to preserve their wealth.
That said, things may not be as rosy for Bitcoin and cryptocurrency as they seem, even if crypto does seem to love a good crisis. In particular, there’s mounting speculation that Russia will seek to evade international sanctions in part by turning to cryptocurrency, although some experts have voiced skepticism that it would be far from easy to convert billions of dollars into crypto and move such sums around.
On the other hand, sanctions have also personally targeted the so-called oligarchs, and the international community may find that such individuals do seek to use crypto to avoid negative financial consequences for themselves. This is certainly the thinking of the US government, which has already opened discussions with leading American crypto-exchanges as to how to stop Russian individuals from using Bitcoin and other virtual currencies to flout sanctions.
The risk here is that Russian individuals and groups may be successful in using crypto to continue moving their wealth around the world. If this is the case, the industry may end up witnessing a significant pushback from regulators and government departments, which may seek to heavily restrict cryptocurrency use.
Experts agree that this is a live risk, with Cowen analyst Jaret Seiberg telling MarketWatch that he does indeed believe Washington is worried that Russia will use crypto to evade sanctions.
“If Russia is able to use crypto this way, then we believe political support in the U.S. for crypto will fall and regulatory risk will rise,” he said.
Of course, the situation is extremely fluid and uncertain in Ukraine and Russia right now, so it’s hard to say whether targeted Russians will turn to crypto in a big way. But with the conflict actually causing a rise in bitcoin volumes in both Ukraine and Russia, it remains a real possibility. As such, traders should be prepared for the possibility that, despite a recent upturn in its fortunes, the market may head down again, depending on future outcomes.
