How Does the Russia-Ukraine War Affect Cryptocurrency Use

Adam Johnson

How does the Russia-Ukraine war affect cryptocurrency use? Russia’s invasion of Ukraine presents a defining moment for cryptocurrencies as more than 2.2 million refugees have fled the country under an onslaught that began Feb. 24.

A key question is how the Russia-Ukraine war affects cryptocurrency’s role as a borderless form of money in the midst of what is becoming the biggest geopolitical and humanitarian crisis so far in this millenium. The supposedly borderless form of money has collided with the reality of economic sanctions assessed against Russia by the United States, the European Union (UN), the United Kingdom, Japan, South Korea, Australia and many others around the world.

Many major cryptocurrency exchanges failed to comply when Ukraine asked them to freeze any accounts belonging to Russians. Some exchanges have cited crypto’s history of underlying libertarian ideals. However, many were complying with the sanctions plan aimed at pressuring Russia’s President Vladimir Putin to withdraw the estimated 150,000 troops he sent into Ukraine, even though the invasion of a sovereign country is a violation of international law.

How Does the Russia-Ukraine War Affect Cryptocurrency Use? Russian Reality

For Ukraine, digital coins have lived up to their reputation for easily moving money across international borders as donations of more than $54 million have been raised for the cause.

However, Russia has been met with the reality of a growing number of international economic sanctions. There is a moral question of whether participants in the cryptomarkets could unwittingly help fuel a war of aggression and help Russian oligarchs preserve their wealth.

Changpeng Zhao, CEO of Binance, the largest crypto exchange, wrote that the company applies the same sanctions rules as banks. Furthermore, he clarified that Binance does not have the authority to freeze all Russian users’ assets. Other major exchanges have also clarified that they would comply with U.S. and European sanctions, just not go further than the laws require.

Experts have said that Russian President Vladimir Putin would not be able to use virtual currency to evade sanctions on a large scale because the crypto market is not big enough and crypto exchanges have compliance departments.

How Does the Russia-Ukraine War Affect Cryptocurrency Use? Bitcoin Slides

Bitcoin initially slumped after Russia launched its assault on Ukraine as investors dumped their riskier assets. Since the first day of the invasion, the paths of bitcoin and stocks have since entwined again, although to differing degrees. It’s still largely been correlated with U.S. equities throughout this crisis.

Many crypto investors see bitcoin as “digital gold,” a handy place to store cash during war or disaster. Bitcoin, as the argument goes, has a limited supply and runs on a global computer network beyond the reach of governments and therefore is safer than traditional currencies.

How Does the Russia-Ukraine War Affect Cryptocurrency Use? No Safe Haven

However, it is not that simple. Bitcoin should not be used as a safe-haven because it behaves more like risk-on assets such as stocks. Bitcoin’s characteristics have attributed to the increase in demand due to the war and therefore it has outperformed other traditional havens such as gold and the U.S. 10-year Treasury note.

Cryptocurrency trading in Russia has soared as the ruble was battered by Western sanctions which aim to squeeze Russia’s economy and sever it from the global financial system. Russian currency holders have combated the quickly decreasing value of the ruble by converting savings into cryptocurrency.

How Does the Russia-Ukraine War Affect Cryptocurrency Use? Trading Jumps

For instance, trading volumes between the ruble and major cryptocurrencies hit a three-fold jump, compared to pre-invasion numbers. In addition, ruble trades with Tether, a stablecoin designed to keep a steady value, showed a jump of five times the volume compared to before Russia’s invasion.

Bitcoin should not be viewed as a safe haven, but it offers appeal as a supply-capped asset that is proving to be a viable alternative to traditional finance in the current environment. As the war continues, volatility in global financial markets, including cryptocurrency, is sure to follow. Risk markets will suffer badly and will struggle to rally further, but should still outperform.

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