On February 24th Russia invaded neighboring country Ukraine after building up a sizable military presence along its borders. In the early hours of the morning, Bitcoin fell to the second-lowest point of the year. But it was a momentary blip. A huge rally began, pulling the price from around $36k, up to just shy of $45k. But why? Why is Bitcoin of all things benefiting from an East European conflict?
The obvious hypothesis is two-fold; the lesser prong is that people are buying crypto to send to Ukraine. Since Bitcoin is not controlled by banks or governments, it can be transferred easily, cheaply, and safely across borders. Recognizing this, Ukraine has been open and even encouraging donations in crypto as opposed to fiat currency. At the time of writing, donations to the tune of $42 million have been sent. Which is overwhelmingly positive, but not enough to move the needle significantly. But the same reasons Ukraine is asking for crypto in donations is very important for the second prong of this hypothesis, which is that Russians are moving assets into bitcoin to prevent them from losing buying power as the ruble crashes. On the day of the invasion Ruble to Bitcoin exchanges topped $16 million worth in trade as the ruble dropped over 30% against the dollar.
But is that all? No. With Russia being denied access to worldwide payment systems and the ceasing of trading Russian stocks on major exchanges, these decisions are causing havoc with the Russian economy. But importantly, it shows just how much citizens are at the whim of the government when it comes to their money. Being locked out of SWIFT (Society for Worldwide Interbank Financial Telecommunication) means sending money internationally will be slower and more expensive, which might not affect many individual citizens as it will businesses, but overall, the average Russian citizen who didn’t want this is being punished alongside the billionaire oligarchs.
It is this second prong, that has stoked some debate within the crypto community. Some members of the bitcoin community raised the idea of not processing transactions from Russia. Not only is this difficult given the anonymous nature of bitcoin wallets, but it also goes against the notion that Bitcoin is for everyone.
Since it is decentralized, and crypto communities could vote collectively to have nodes not verify Russian transactions, it would not likely reach the consensus needed as many believe that the draw of bitcoin is that it is the first currency that is unaffected by geopolitical conflicts. Furthermore, there are 144 million Russians. The overwhelming majority are normal people who have nothing to do with Putin’s ego running amok and are facing economic uncertainty in the wake of far harsher sanctions than anything that was put on the table in 2014 when Putin invaded Crimea. Bitcoin is saving them by giving them a place to store money that is not at the whim of banks or the government. And when your government is run by someone like Putin, that seems like a very fine alternative.
Russia’s economy is going through a major crash. One whose effects could be felt for years to come. The hope in this is that Putin loses support from the Oligarchs who will hopefully be ostracized from revenue streams outside their home country. You don’t become a billionaire by caring about friendships and should they feel it hard enough in their wallets, they will withdraw support for Putin and thus deal a significant blow to his dictatorship. I’m oversimplifying the situation vastly of course, but rich capitalists won’t go broke for anyone.
Now personally, it does leave a bitter taste in my mouth knowing that Putin’s disgustingly wealthy inner circle are using Bitcoin for the same reason as the working-class Russians, but it is more likely that Oligarchs are using bitcoin to avoid the crash and take the sting of some of the economic sanctions being brought against the country. This is perhaps why an $800 billion-plus asset can jump up so quickly.
But crypto as a truly decentralized system cannot pick and choose who uses it. That is its greatest strength or potential weakness depending on where you stand on the matter. As much as it pains me to think of those elite few who could stand to lose 30% of their wealth and still be richer than the rest of us combined, I admit it’s a small price to pay to protect the millions of citizens facing a poor economic fate. This returns us to the debate within the crypto community regarding Russian transactions; once we begin to make decisions, even as a community, on who can and can’t use Bitcoin, we are essentially no better than the governments or banks Bitcoin is hoping to be an alternative to.
Some centralized exchanges have taken a stance by banning Russian users. Popular centralized exchange FTX went one further by donating $25 to every Ukrainian user. But Kraken CEO Jesse Powell said his platform would do no such thing unless there was a legal requirement to do so, stating “Besides, if we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, step 1 would be to freeze all U.S. accounts,” It’s a hot take, that makes a lot of sense if a little inflammatory.
Whichever way this goes, the world is seeing Bitcoin, and crypto in general, as the hedge it can be. A protective bubble untouchable by banks and governments, unphased by borders, and secured by millions across the decentralized blockchain. I imagine adoption in Eastern Europe will increase over the next few years as it plays a more important role in the region’s economic landscape.
meanwhile, the US is currently trying to secure more power in dealing with crypto to try and reign in the rally for fears of Russia using it to bypass their sanctions. In this case, it will be too little too late, but further regulatory powers on crypto is a discussion for another day.
But should the protestors who risk arrest on the streets of Moscow be punished? Should the citizens who have lived quietly and unhappily under nearly two decades of Putin be punished? No. And thanks to bitcoin, in some small way, they won’t be.
Right now my thoughts and hopes are with the Ukrainian people at this time.
Richard Mooney 