Russia's invasion of Ukraine is putting pressure on global stocks, pushing up oil prices, stoking inflation and derailing Federal Reserve plans to raise interest rates. through it all,
seems to be sailing through the storm.
Trading around $43,800 on Tuesday, Bitcoin is up 8% in the last 24 hours. The cryptocurrency rallied 23% from lows around $35,000 last week as Russian forces invaded Ukraine, triggering the first major European ground war since World War II.
Crypto appears to be benefiting from demand as a currency or store of value in countries that are being rocked by war and new financial controls, or even just its prospects.
Bitcoin trading volumes in Russia and Ukraine have increased, indicating that citizens are buying it as an alternative to Russian.
ruble
and ukrainian
hryvnia,
both are under heavy pressure.
The demand for stablecoins has also increased as citizens of Ukraine and Russia buy the tokens, which aim to maintain a fixed value of $1.
Moon,
a token used to back algorithmic stablecoins on the Terra blockchain network, has soared 67% in the past week.
Crypto is also finding other uses. It is being deployed for donations to Ukraine's defense and humanitarian aid. Ukraine's government and nonprofits supporting its military have raised $30.8 million through more than 26,000 donations of crypto assets, according to the blockchain data analytics firm. Elliptical.
However, as borderless digital currencies that operate outside the banking system, Bitcoin and other cryptocurrencies can also be used to evade sanctions. And while its uses have positive aspects, allowing ordinary citizens to transact and hold onto their wealth while their sovereign currencies crash, they can also have long-term negative repercussions.
“We have never imposed such large sanctions on a major country before,” said William Luther, an economist at Florida Atlantic University and a member of the new Bitcoin Policy Institute think tank, referring to global sanctions against Russia. "To the extent that Bitcoin fills a useful role in a broader payment system, it increases the demand for Bitcoin at the expense of other transaction technologies."
Bitcoin payments are fast and ultimate attractive features in a war and government restrictions on banking and currencies, he added. "It may not be the technology you want to buy a loaf of bread with, but if you need funds quickly and want to know they're really yours, then it's a technology that plays a useful role."
However, the social benefits are also becoming more murky. The more governments or individuals use cryptocurrency to evade sanctions, the more it becomes a target for government bans or tighter restrictions on its use. Governments may now face more calls to monitor crypto transactions more closely, if not ban them outright. China has already banned commercial transactions in crypto, effectively separating Bitcoin and other tokens from the traditional financial system.
US government officials have raised concerns that crypto exchanges could be a backdoor channel for illicit activities. The Treasury Department has requested assistance from exchanges in enforcing the sanctions, according to a report by Bloomberg. The Treasury Department did not immediately respond to a request for comment.
This episode with Russia could also speed up efforts by governments to develop their own digital currencies or adopt cryptocurrencies to undermine potential future sanctions.
"In a world where it is clear that huge sanctions may be placed on Russia, countries that may be subject to sanctions will use technologies to evade them, including crypto," Luther said. That could make sanctions even less effective in pressuring countries in the future.
Another warning for investors: the technical set-up of cryptocurrencies is not great yet. While Bitcoin has broken through some key resistance levels and momentum seems to be building, Bitcoin still needs to overcome some technical hurdles to break out of the $50,000 range, Fundstrat Global Advisors said in a note on Tuesday.
"Overall, there seems to be some short-term reason for optimism, but the three-month trend is still negative, so it will take time to rebuild and gain more confidence towards a bigger rally," Fundstrat said. Bitcoin, the firm added, will have to keep prices above a support level around $37,000 for the rally to hold.
Write Daren Fonda at daren.fonda@barrons.com