Russia’s brutal attack on Ukraine to deter NATO’s expansion plans has left both the Russian and Ukrainian economies in jeopardy. The hype around increasing real-world utilities of cryptocurrencies has been picking up since
Moscow initiated the assault against Kyiv, what is called an attempt to “demilitarise Ukraine.” In this case, both the aggressor and the defender have had to face the economic repercussions of the war. The Russian ruble sank to a record low of 105.27 per US dollar. The Ukrainian hryvnia also plummeted to a 7-year-low amid the war. The impact of the ongoing crisis has been visible in the European economy as well, with the euro hitting its weakest level since May 2020. But how does the impact of wars on FIATs differ from their impact on bitcoin?
Source: https://headtopics.com/my/rouble-sinks-stocks-plunge-as-russia-recognises-ukraine-breakaway-regions-malay-mail-24250885
The global economy has taken a significant hit over the past few weeks, with Russia, a major oil and energy exporter, being bombarded by severe US and NATO sanctions. As the Russian economy continues to reel, staring at a major crisis, experts have argued that Moscow could use crypto to mitigate the impact of the severe sanctions. On the other side, the Ukrainian government and NGOs within the war-torn country have raised more than $54 million in bitcoin donations. Ukraine has used more than $15 million from these donations to purchase weapons and military equipment. But can Bitcoin and other stable currencies save the Russian economy from plunging further?
Crypto Rises Amid Global Economic Crisis
The argument that cryptocurrencies like bitcoin put an end to the hegemony of the US dollar has been floating for quite some time now. Experts across the industries have weighed their opinion on how nations can leverage crypto to evade unilateral sanctions. But can Bitcoin withstand the impact of war or severe sanctions? Stock markets have witnessed a bloodbath amid the Russia-Ukraine war. Wall Street’s benchmark S&P index lost 1.5% last week. The US stock futures plummeted as much as 2.9% while the European markets are reeling as well. However, crypto has been largely unaffected by the war. In fact, the prices of bitcoin and other cryptocurrencies witnessed a surge amid the escalation of the war. So, what’s fuelling this surprising rise? Does this signal a positive impact of wars on the price of bitcoin?
Source: https://fortune.com/2021/07/28/crypto-uses-legal-tender-imf-cryptocurrency/
Decoding the Impact of War on Crypto
Since the fighting between Russia and Ukraine broke out, Bitcoin has jumped 13% to $39,500. But the real shock in the market came when Bitcoin rallied above $44,000 before resting below the $40,000-level. The sudden jump in Bitcoin prices across Russia and Ukraine could be one key reason behind this sudden jump. According to CryptoCompare, the trading volumes between the rouble and major cryptocurrencies hit 15.3 billion roubles last Monday. The crypto market depends heavily on supply and demand. The higher the demand, the higher is the price. With the Russian ruble taking a thrashing due to the imposition of unilateral sanctions, the demand for stablecoins has shot up. Analysts who had been predicting a bloodbath in the crypto market since the reports of the war came into mainstream media have had to eat up their own words.
The global crypto market jumped back to a $2 trillion market cap, rising over 10% between Feb 28 and March 1. The capability of the US and its Western allies to impose heavy costs on their adversaries by weaponizing the traditional financial system is an eye-opener for all the sovereign states. Crypto has the potential to democratize the global financial system, ending the dominance of any particular country or institution. This realization could be the reason that Russian investors are flocking to crypto exchanges to convert their money into Bitcoin and other cryptocurrencies. “The current geopolitical crisis has exposed the fault lines of the TradFi world and underscores the importance of crypto as an alternative to the financial system, which is being weaponized by Western powers,” said Sharat Chandra, VP- Research and Strategy, EarthID. The fact that the world’s global crypto exchanges, including Binance and Coinbase, refused to ban the accounts of Russian traders despite continuous pressure from Ukraine and its Western allies is a testament to the decentralized nature of the crypto industry. As the real-world utility of crypto continues to increase, Bitcoin and other cryptocurrencies will grow indifferent to phenomena like war.
Sanctions and Crypto
The argument that Russia could use crypto to mitigate the risk of sanctions is getting stronger, with leading crypto exchanges refusing to follow the clarion call of Washington. While the crypto community has been on its foot to assist Ukraine on humanitarian grounds, they have refused to follow the popular line on hurting common Russians economically. Russia’s U-turn on the plan to ban crypto transactions weeks before the war could a part of Putin’s larger strategy to absorb the shock of Western sanctions, which have been costing Moscow $50 billion annually. While Saudi Aramco refuted the reports of “investing heavily” in Bitcoin, the industry has gotten habitual to these refutals. It could well be another Microstrategy-like move. If Russia figures out a plan to accept Bitcoin in exchange for oil exports, it could be a template for others to follow. In fact, Iran has been using Bitcoin to bypass US sanctions and export millions of barrels of oil annually.
The example of Iran could be a perfect case study for building an economic model immune to unilateral sanctions from countries weaponizing trade and global financial institutions for political gains. Bitcoin’s underlying technology, blockchain, has decentralization at its core. Bitcoin is an attempt to democratize global finance. Whether the crypto market can withstand sanctions in the long term would present a clearer picture. However, in the short term, wars seem to have a positive impact on bitcoin.
Bottomline
The ongoing war between Russia and Ukraine and the imposition of unilateral sanctions on Moscow, is an example of how financial institutions and the dominance of the US dollar have been misused by world powers to affect their adversaries. Having a hegemon in the global financial system is the biggest threat to the neutrality of the global economy. Crypto is emerging as a decentralized alternative to traditional finance, where users are in control of their money. Brian Armstrong, CEO of cryptocurrency exchange and wallet Coinbase, sees crypto as “another route to preserve wealth”.
By resisting the impact of the ongoing war, Bitcoin has strengthened its case as a decentralized and reliable global currency that has the potential to democratize the global economy. Whether crypto will be able to gain global acceptance would be crucial to the industry’s rise.