Role of cryptocurrencies during an international conflict

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The ongoing Russia-Ukraine crisis may have the signs of what many are calling a ‘War by Crypto’. With over $60 million-worth of digital assets being transferred to DAOs and funds maintained in favour of Ukraine, suggests that this digital economy is hard at work.

Cyptocurrencies, or crypto-assets, cuts both ways in as much as the advantage presented to Ukraine is also available to Russia. According to some reports, Russia has been considering accepting Bitcoin as payment for its oil and gas exports.

The ongoing conflict is the first time crypto-assets have come into prominence from a financing point of view, and this poses several new questions as to how conflicts are financed. It opens a new front on how economies adapt during conflicts. What is the role of crypto-assets during a war?

Geopolitics is shifting the paradigm of how sovereign currencies react. Since the beginning of the conflict, depositors on both sides of the war have been making a bank run to withdraw their money. Owing to this, the Russian central bank raised its interest rates substantially to stabilise the freefall of the rouble. With sanctions doing the rounds and the values of sovereign currencies falling, people generally move their money to safer havens such as gold. But this time around, it’s Bitcoin that has taken precedence. Surprisingly, even the US Dollar, considered to be the global reserve currency, is not immune to this shift.

People are preferring converting fiat to Bitcoin or other virtual digital assets (VDAs), and receiving funds and transacting in crypto assets over fiat currencies. This is despite the fact that off late VDAs have been behaving like a risk asset and not like a safe haven touted till a few months ago.

Effects Of The New Regime

Here is a run-down of what we believe is happening in the current times and how the immediate future will get affected in presence of and because of Cryptos.

Enabling The Displaced Economy: The past 40-plus days of the Russia-Ukraine conflict has seen mass displacement of people. This amounts to a huge loss not only to the country but also to millions of individuals. With this sudden displacement comes a humanitarian crisis, and the friendly governments can only do so much. With fiat donations taking their own sweet time, friends and family have reached out with crypto donations, the transfer of which takes anywhere between 1-20 minutes.

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