Is The Russia-Ukraine War Bullish For Crypto?

Throughout history, innovative technologies have a tremendous impact on war, and cryptocurrency is proving to be no exception. As Russia’s invasion of Ukraine continues, cryptocurrencies have emerged as a significant battlefront on both sides.

Whether it’s Russian citizens scrambling to protect their savings from Ruble inflation, crypto donations pouring in to support Ukraine, or the Russian government attempting to skirt unprecedented sanctions, crypto is a recurring theme in this war. What does this mean for crypto investors?

Watch On YouTube

Episode Highlights

The West’s Sanctions Barrage Severs Russia’s Economy From Much of the World: “The economic moves by the U.S. and Europe, in response to the invasion of Ukraine, reverberated Monday through Russia’s economy, which was largely cut off from much of the West, and hindered the ability of Russia’s central bank to manage the country’s financial system and mitigate the damage.” (Wall Street Journal)

Crypto exchanges resist calls for ban on Russia transactions: “Trading between the Russian rouble and crypto assets such as bitcoin and tether has doubled since the assault on Ukraine began, reaching $60mn a day on Monday, according to data from Chainalysis, a crypto research group. That suggests Russian accounts — barred from the established dollar-based financial system through sanctions — are stashing funds in crypto or moving wealth overseas.” (Financial Times)

Ukraine accepts dogecoin, other cryptocurrencies for donations as funding rises to $35 million: “The Ukrainian government has raised $35 million, through more than 35,000 cryptoasset donations since the start of the Russian invasion, according to Elliptic, a blockchain analytics company.” (CNBC)

About The Show

Cryptogic is the show for crypto investors who are focused on long term results. Follow Scott Hawksworth and Andy Hagans as they explore the investable world of blockchain technology, NFTs, Bitcoin, Ethereum, and other cryptocurrencies.

Connect With Cryptogic


Scott: Hello, everyone, and welcome to another episode of “Cryptogic.” Scott back with you. And I have Andy Hagans once again on the show with me today. It’s been a while since we both have been on the show together, so it’s great to be back. Welcome back, Andy.

Andy: Thanks, Scott. Glad to be here.

Scott: Yeah. Glad to be back. And today it is March 3rd. And we want to talk about an event that has really shaken the West over this last week. And that is the Russian-Ukrainian war. And quite simply, it is impacting so many things, but we want to talk about the very real impacts that this war is having on cryptocurrency itself.

So, that’s kind of our big topic for today, Andy. And I guess to kick things off, you know, what have you kind of seen when you’ve been looking at the crypto markets and the response, really, to what’s an unprecedented event?

Andy: Yeah. And, you know, I want to point out that, you know, I don’t look at this event just purely or even primarily from the market point of view. Wars are ugly, they’re violent. This is going to be a humanitarian crisis.

It could be one of the major refugee crises in Europe, you know, of the past century. From what I’ve heard, so, you know, we’re going to cover it from that lens, but, you know, I think it must be said, it’s a heartbreaking situation. And my prayers, my heart is with, you know, all the people suffering through this crisis. But I think, you know, it must be said in reference to crypto, people who invest in crypto, a lot of investors in crypto, and some investors in other kinds of assets like gold, the type of assets that don’t yield, a lot of the reason that people buy those assets is not for when times are good, right?

It’s not for when we’re in a stable period of economic growth or the stock market’s returning, you know, 10% to 14% a year and the bond market’s returning 3% to 5% a year and inflation is 2% or lower. That’s not why you buy gold.

And that’s not why a lot of people buy crypto. You invest in those sorts of assets a lot of times because in times of crisis, suddenly those assets can outperform. Right? So, I mean, it is actually relevant. And also, you know, some of the things we’re going to talk about today, crypto actually has a role to play in this, you know, invasion, in this war both in the Ukraine, but in Russia, and around the globe and how that’s interacting.

So, I guess at a really high level, you know, lately, we’ve been talking about how crypto has been moving more just like a regular risk asset in terms of its price movements, moving more and more with the stock market. But the original thesis, you know, behind crypto is that, you know, you have money that is not centrally controlled, is not centrally managed.

It’s not a fiat currency where a government can print more. And, you know, if you control your wallet, if it’s not at a custodial exchange, you have control over it, right, just like if you have a gold bar in your possession, you have control over that. And I think that this entire, you know, geopolitical event with these massive global implications has reminded people, especially with these global sanctions that were frankly, I think, faster and maybe severe than people thought could happen this quickly.

Credit where credit is due. A lot of people are saying it’d be better that they happened before Russia invaded. And, you know, I think there’s a lot to be said that, you know, maybe there were some things that should have been done before this invasion, but frankly, I don’t think sanctions this severe would have been politically feasible before an invasion.

So, I think after this invasion, you know, I think a lot of people have actually been surprised at how severe they are. And when something like that happens, you see in Moscow, you know, lines around the block to access ATMs this past Sunday, a lot of well-to-do people taking their Russian fiat to the local Louis Vuitton boutique to exchange it for luxury items that, you know, store value.

Scott: Or even with Apple suspending sales in Russia and there’s a run on Apple stores to get the last bit of iPhones that they can get and do that as well. So, I think that you’re seeing, yeah, sort of, I would call them unprecedented because of just the speed and the united front that these sanctions really have had.

And it’s been a significant impact because now you consider whether its wealthy Russian people, people in the Russian government, or even just average citizens seeing the impact on their currency and seeing the fact that there are assets offshore for them that they now no longer have access to.

And that impact has really been wide-reaching. And so then you made the point, Andy, about the decentralized nature of cryptocurrency and how that sort of changes the game a bit in the sense that they’re outside of any one government. They’re outside… Cryptocurrency is not controlled by the West, and so that has kind of had this impact on crypto where you see… I have a specific data point here.

So, trading between the Russian ruble and crypto assets such as Bitcoin and Tether has doubled since the assault on Ukraine began. And it, on just this past Monday, reached 60 million a day. So, clearly, there is a response here from these sanctions that has gone to, well, crypto.

Andy: Well, and I think there’s two things going on. One, you just mentioned that statistic inside Russia, right? And so now inside Russia, you know, during periods of inflation, cash is trash, right? So, right now the ruble is trash.

I’ll take my rubles, trade them for a Louis Vuitton purse, trade them for Bitcoin, trade them for a bar of gold because when your country is sanctioned like this and all of these exports are cut off and your central bank loses access to all of its foreign reserves, your currency is devaluing very, very, very quickly. So, how quickly can I get rid of my rubles?

Right? And again, that new popularity of Bitcoin and other cryptocurrencies inside Russia, but I also think outside Russia, it’s a reminder to everyone this is why it’s a good idea to diversify the kind of money you have because if you only have a fiat and hyperinflation sets in, now you’ve lost your store of value, right?

So, this idea of owning crypto, and then, by the way, you know, if it’s not in this custodial wallet, if it’s in your own wallet, a sanction doesn’t affect it one way or the other. It’s on the blockchain, the blockchain is…the sanction is not going to stop the blockchain.

Right? So, I think it’s possibly like one of the best marketing campaigns, sales and marketing campaigns for crypto that you could imagine. Of course, it’s heartbreaking circumstances, but back to what I said at the beginning of the show, you know, certain things like gold, like silver, like hard assets, like crypto tend to perform better, maybe, you know, during these…I don’t want to call it a black swan event, but during these crises.

Scott: Yeah. Andy, to that point, we had a recent episode where I was talking with Stephen Flood about precious metals. But one of the problems is that even those precious metals, you know, it’s not so easy to take a gold bar and package it up and ship it to pay your debts or whatever you might need to do.

And so that, again, is another case for cryptocurrency that’s even more than precious metals for Russia, for example, because, you know, if they have stores of gold even in their banks there, well, what are you going to do with that?

It’s not so easy to move that around and move things along that way like it’s another piece.

Andy: I think, Scott, a lot of their gold is probably stored in Switzerland and in foreign banks just like their foreign reserves, you know, their reserves of foreign currency at the Russian Central Bank and a lot of these other Russian banks are stored in other countries and now suddenly they’re cut off.

And I should say, you know, these sanctions do have…they’re leaky in a way. They do have exceptions. Some of these banks have been accepted out because of, you know, petroleum energy transactions. So, Russia’s economy is not totally cut off, right, because of our energy policy which, you know, hasn’t been the smartest for the past couple of years.

Even the United States, you know, a lot of countries and economies are fairly dependent or more dependent than they want to be on Russian energy. So, that’s unfortunately undercut… – Even Germany has had to kind of grapple with some of that. So, yeah.

Scott: They are very dependent on Russian energy. Right. But nevertheless, it must be said that the sanctions have been pretty darn effective and the thing is, is they’re indiscriminate. Right? And I should say, you know, I support the sanctions. I think, given the circumstances, they’re the right thing to do and I’m thankful that the international community came together the way they did and are applying them, but it must be said, you know, they punish not only the oligarchs, not only Putin and, you know, other government officials, but they also are going to punish Russian people, many of which are, you know, living at or below the poverty line, many of which are not in favor of this war.

It doesn’t mean I don’t support the sanction.

Andy: And Putin may not necessarily care about too much in getting that.

Scott: Right.

Andy: Yeah.

Scott: So, it’s sort of a blunt weapon. I mean, it’s… Using an analogy, kind of like a bomb, you maybe have a target, you trying to hit that target, but there’s a lot of collateral damage, and so I think that’s the way these sanctions work is there’s a lot of collateral damage. But again, you know, anyone who owns crypto or who has an on-ramp in and out of crypto they are a potential way to go around the sanctions to transact around the sanctions whether you’re talking about an everyday citizen in Russia or potentially the government or oligarchs.

But I think that the cryptocurrency market is not big enough to…obviously, it’s not big enough to absorb all of that transaction volume that Russia was, you know, previously doing in the TradFi world.

The current crypto market is not big enough, but I think it probably gets a lot of people thinking, “What about the next time something like this happens?” It’s good if you have infrastructure set up, again, even at the everyday citizen level where you have, you know, on-ramp, off-ramp into an alternative form of money where you can transact. And again, I’m for the sanctions, but a lot of people are getting caught up in them and are being hurt by them that have nothing to do with the war, that don’t want the war.

So, I think I view it as a giant marketing campaign for that intrinsic utility of crypto and I think that’s being reflected in the markets because we see Bitcoin and Ethereum are up, you know, roughly about 10% since the invasion, right, Scott?

Andy: Absolutely. And I’d actually even point on the other side of that, you know, we’ve been talking a lot about the impact on Russia and what’s flowing into crypto from Russia, but then you’ve had this other piece where there’s been an outpouring of support for Ukraine. And a lot of that support is coming through cryptocurrency donations and supporting Ukraine’s defense and their country.

And I think the statistic was $35 million. The Ukraine government had raised $35 million in cryptocurrency and they had seen that pour in and they’re now accepting Dogecoin as well. And that kind of points to another sort of impact that the decentralized nature of crypto has in the sense that these donations don’t necessarily have to go through a huge nonprofit organization, you don’t have that kind of lag time where, “Okay. We’re going to donate it all to the Red Cross and see it there.”

You have donations going directly to Ukraine’s war effort. So, I think that’s another side where you’re seeing how these underlying technologies and the decentralized borderless nature of cryptocurrency is also impacting the other side and… – And its efficiency, Scott, because you could always wire money to Ukraine.

But if you want to, you know, go to your local Chase Bank and set up a new payee and wire money to Ukraine, that’s going to be…it’s going to take probably hours, but more likely days before that clears on the other end, let alone if the bank that you’re wiring it to in Ukraine is closed because it’s been, you know, shelled or something like that.

But with crypto, you have a wallet address and bam, you know, you’ve sent that money over. And there’s other, you know, aspects to this too where, you know, I understand our government is lobbying or asking a lot of the crypto exchanges, which they’re a little bit of an odd duck because, you know, if you have all of your crypto holdings at a crypto exchange, you’ve kind of centralized them, right, at an institution.

But by and large, most of the exchanges, maybe all of them but one basically said, “No, we’re not going to limit access to Russia’s…”

Scott: We’re not going to ban all Russian IP addresses from using our exchange.

Andy: Right? So, I think crypto it’s almost like, gosh, I hate to use the word, but it’s almost like another weapon in this war and you can kind of see it being used on both sides, you know, or at least I can see, you know, people within Russia who are, you know, feeling the pain of the sanctions are probably using it, but then you’re also seeing it be used to aid the effort in Ukraine.

Scott: Exactly. Exactly. And then I think it does go back to certainly with the exchanges and the leaders at those exchanges where there’s that…we’ve talked about this before, Andy, that sort of philosophical, that sort of libertarian ethos that underscores so much of the crypto world and certainly its beginnings. And again, there’s that commitment to we do not want to do what governments might do and have exercise that kind of control.

And so I think that that philosophy has impacts, positive, possibly negative if you’re thinking, “Well, does this allow this oligarch to skirt this sanction that’s meant to cause them, you know, considerable discomfort?” But I think then you kind of look at the overall idea, well, there’s positive and there’s potentially negative impacts, but when you look at it from a straight objective standpoint, cryptocurrency is still just playing a role and this technology is here to stay and I think it’s just a new piece of when we’re looking at conflicts that obviously we hope resolve quickly and with as lowest loss of life as possible.

But as conflicts happen, cryptocurrency is going to continue to be a part of that. It is going to be a factor because, you know, conflicts it’s money.

Andy: Yeah. And Scott, I think, you know, you’ve pointed this out that this is almost like a test run for crypto. I feel like this is the first major conflict in history, maybe, where crypto is playing a significant role more than just like…

Scott: I believe so. Yeah.

Andy: …more than a footnote. So, you talked about I think it was $35 million that was sent to aid the Ukrainian government, you know, resisting the invasion or you talked about the volume doubling inside Russia of crypto transactions inside Russia. I have a feeling that in the next crisis like this, those sorts of numbers are going to be an order of magnitude bigger.

Right? So, $35 million, you know, in fiat terms, $35 million sent to finance, you know, some resistance sent via crypto. I could see that being $350 million or $3.5 billion, right? Or think about, you know, the transactions or number of wallets inside Russia. Those are doubling now.

It’s still from a very small starting point. Maybe if 1% or 2% of Russians own some crypto and then that doubles, it’s still a significant number. But now if you imagine the next global conflict that 20%, or 30%, or 40%, or 50% of citizens in that country already own crypto, already have a wallet or an account somewhere, I think those kind of numbers are going to be in order of magnitude higher.

And I think the next time that there’s any kind of sanctions like this, you know, they’re going to have to more and more account for crypto. And I think even… I think there’s even some questions being asked. I read a headline, I think it was this morning, maybe last night, about some Democrats and U.S. Congress asking how is cryptocurrency affecting these sanctions, potentially undermining these sanctions?

But I think in the United States, you know, we have a lot of politicians mistakenly under the assumption that they can control everything. And I think, you know, what they may find is that there are some aspects of the financial system that are now almost entirely…

Scott: Outside of their control.

Andy: Exactly.

Scott: Yeah. I think so. And one thing I’d add to that, Andy, when we’re talking about future conflicts, how many, whether they be citizens, whether they be part of a government, whether they be particularly wealthy citizens in any country where there may be conflict, there may be government upheaval, there may be something that could happen, how many of them now are thinking, “Well, I need to protect my assets because I don’t know, you know, what could happen.

Maybe this government gets overthrown. Maybe we get into conflict with another country and the West sanctions us. That right there provides, as you mentioned, such a case for cryptocurrency as a way to say, “Well, I’m in this country. I have this leadership. Maybe I didn’t even vote for them, but they’re here. Now how can I protect myself in case our fiat currency, you know, goes into hyperinflation or I, all of a sudden, can’t go to my bank because of heavy sanctions that levied on it?” Right?

Andy: Absolutely, Scott. And, you know, it must be said, this conflict in Ukraine puts things in perspective here in the United States, right? We’re very blessed that, you know, even if we’re in a time of economic disruption and a higher inflation, a good time period to reflect and, you know, give thanks for the fact that we have, peace, and relative stability, and institutions, and safety in the United States that we can trust. But nevertheless, your point that it makes people think, it doesn’t necessarily have to be a war or an invasion that’s the type of crisis that precipitates investors looking into gold or crypto, right?

Here in the United States we now have inflation of 7%. That was the official CPI print. A lot of people would claim that the actual real inflation rate is a lot higher. I would say that’s definitely true. And in a lot of individual’s cases that their personal rate of inflation is a lot higher than 7%. You look at the headlines lately, you know, the President announces we’re going to release another 24 hours with oil from our strategic reserve.

And you can kind of say, “Well, that’s a pretty limp policy response right there. What difference is that really going to make?” And I could see inflation here going higher definitely in the short-term because of the additional supply chain disruptions which we’ve already had because of the lockdowns from COVID. And so I think even having that higher inflation rate of 7%, 8%, 9%, 10%, even that alone could qualify as a crisis that makes a lot of people, you know, look into crypto who maybe otherwise wouldn’t have.

Scott: Absolutely, Andy. And I’m glad you mentioned that because, you know, this is truly a global crisis we’re seeing here for the West, this Russian-Ukrainian war. But we’ve been in various stages of crisis really since 2020 around the world for various reasons. So, I think it’s a good point to sort of end on to say in times of crisis, it does seem to me that cryptocurrency really continues to emerge as a place where capital will flow.

Andy: Absolutely.

Scott: Thanks again, Andy.

Andy: Thanks, Scott.

Default image
Scott Hawksworth

Hailing from Evanston, Illinois, Scott is co-founder of Cryptogic as well as host of the several popular crypto podcasts. Scott believes that cryptocurrencies and NFTs represent a once-in-a-generation opportunity for investors of all types to participate in the future of decentralized networks.