As Ukraine-Russia Conflict Puts Crypto In The Spotlight, Could This Be Its Moment To Shine?

A number of prominent cryptocurrency exchanges have defied calls from Ukrainian politicians for a unilateral freeze on all Russian accounts, citing crypto’s libertarian ideals to justify their decisions. 

Ukraine Vice Prime Minister Mykhailo Fedorov on Sunday called for a ban on all Russian cryptocurrency trades on major exchanges including Binance, Kraken, Gemini, and others.

“It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians but also to sabotage ordinary users,” Fedorov said on Twitter. 

The call was rejected by multiple exchanges later that day. Kraken Chief Executive Jesse Powell said on Twitter that although he understands the reasons behind the request, he would not proceed with a blanket ban on Russian users of the platform. 

“Our mission at [Kraken] is to bridge individual humans out of the legacy financial system and bring them into the world of crypto, where arbitrary lines on maps no longer matter, where they don’t have to worry about being caught in broad, indiscriminate wealth confiscation,” Powell wrote on Twitter. “Our mission is better served by focusing on individual needs above those of any government or political faction.” 

On the other hand, most cryptocurrency exchanges have quietly moved to comply with international sanctions initiated by the West that aim to cripple Russia’s economy.

The stark contrast between the public stance of some of the biggest players in the crypto world and their actions underscores the challenge faced by the industry in what many say is the biggest geopolitical and humanitarian crisis of our age – and certainly the most significant since the birth of cryptocurrency itself. 

For Ukrainians, cryptocurrencies such as Bitcoin and Ethereum have been a lifeline, living up to their reputation for allowing the quick and easy movement of money around the world and across borders. Sympathizers to Ukraine’s cause have reportedly sent more than $54 million to support the country via crypto donations. 

However, the borderless nature of digital currency also threatens to undermine international sanctions imposed on Russia. That’s led to a moral question about whether crypto might be helping Russia’s government to skirt sanctions to fund its war while allowing its oligarchs – many of whom support Russian President Vladimir Putin – to protect their financial assets. 

Caught in between are the crypto advocates and exchanges, who now have to determine how far they’re willing to go to support the libertarian principles of freedom and inclusivity that underscore the digital currencies they love. Moreover, they’re faced with the reality that wider institutional acceptance of crypto is likely dependent on its acceptance of sanctions. Meanwhile, the idea of Russian politicians using crypto to avoid sanctions only strengthens the critics’ argument that aside from investing, money laundering, and other criminal activities, crypto has little practical value. 

“The crypto industry has no interest in helping anyone avoid justly imposed sanctions,” wrote Ben Caselin, Head of Research & Strategy at AAX, a cryptocurrency exchange platform, in a recent blog post. “Not everybody should be able to freely use an alternative financial system that was created to make the world better and fairer, especially not to launder wealth gained through war, exploitation, or suffering. We do not want evil of any kind in the crypto markets.” 

Exchanges, therefore, need to do everything they possibly can to block sanctioned persons from gaining entry to their platforms, Caselin added. He admitted it’s a delicate balancing act though, because exchanges are also required to ensure that the collaborative and unrestrained community spirit of crypto continues to thrive, so it can keep on doing good in Ukraine, as we have already seen, and elsewhere. 

Another question that’s now being asked about the crypto industry is just how much its image of being the antithesis to authority is really just a carefully constructed mirage for purposes of marketing? 

When the international community first announced its sanctions on Russia, one of the most grating statements was made by Binance, which is the largest cryptocurrency exchange in the world in terms of volume. A spokesperson for Binance told CNBC that it had no intention of limiting access to Russian users, saying to do so would “fly in the face of the reason that crypto exists”. 

Just days later, however, Binance CEO Changpeng Zhao made very different noises in a blog post explaining how the exchange was applying the same rules relating to the sanctions on Russia as traditional banks are doing. He also drew attention to the company’s $10 million donation to Ukrainians, while refusing to take the most drastic step. 

“Why won’t Binance go one step further and sanction/freeze all Russian users’ assets?” Zhao said. “The most important point: we don’t think we have the authority to do so.” 

Since then, numerous other exchanges have taken a similar stance, saying that while they won’t ban Russian users outright, they will comply with European and U.S. sanctions to restrict access to certain individuals. 

The sanctions may have the indirect effect of ushering in stricter regulation of cryptocurrencies – something that is hoped for and feared in equal measure. Many in the crypto community welcome tighter regulation as a way of increasing institutional investment, while others believe that governments are trying to use regulations to what they see as a threat to their control of the international economies. 

Last week, Democratic Senator Elizabeth Warren joined three others in writing to the U.S. Treasury Secretary Janet Yellen, asking for reassurance that the Russian government won’t be able to evade the impact of sanctions through crypto. Around the same time, Federal Reserve Chairman Jerome Powell, a Republican, once again called for new laws to govern cryptocurrencies while testifying before Congress. 

While the specter of increased regulation continues to loom large, the community may find some solace in the fact the conflict has reinforced the idea that crypto can be a safe haven during times of crisis. For many years, Bitcoin devotees have lovingly referred to the cryptocurrency as a “digital gold”, or a store of value when markets are in turmoil, just as traditional gold is. 

That theory hasn’t always held up, with the price of Bitcoin slumping in correlation with other risky assets such as stocks. However, as the war in Ukraine intensified, Bitcoin and other cryptocurrencies managed to hold their value as other markets declined. Then, a few days into the conflict, Bitcoin saw a huge jump with its price rising above $44,000 at one point, leading to suggestions that it is indeed a store of value. 

AAX’s Caselin told NewsBTC that the past few days have removed any doubt around Bitcoin’s status as a safe-haven asset. 

“With the Russian Ruble losing more than 30% of its value overnight, following sanctions imposed over the weekend, we’ve seen a significant surge in trade volume on BTC/RUB markets,” Caselin said. “These developments once again highlight that Bitcoin is more than just an investable asset for portfolio allocation and returns. The narrative of crypto as a lifeline in times of economic distress and geopolitical turmoil is becoming apparent as the fundamental driver of adoption.”