The two sides of crypto in Ukraine war

Hello and welcome to the latest edition of the FT Cryptofinance newsletter. One year after the Russian invasion of Ukraine, we are looking at the role that cryptocurrencies have played in the conflict

Crypto's Impact on Geopolitical Issues is not usually an uplifting read. The US, for example, fears that digital assets could offer actors under sanctions a new means of circumventing the financial system.

But the war in Ukraine has shown that the use of cryptocurrencies in international affairs is much more nuanced and complicated. Blockchain data analytics firm Elliptic shared data with the FT showing that private cryptocurrency fundraising for pro-Ukrainian causes has outperformed Russian equivalents by a ratio of 44 to one over the past year.

In total, more than $200 million in cryptocurrency has flowed to what have been described as pro-Ukrainian causes. Over $80 million of these funds were sent directly to the Ukrainian government.

Just weeks after the invasion, a Ukrainian politician said that cryptocurrencies had helped supply its armed forces with supplies including bulletproof vests, helmets and walkie talkies. Other funds went to humanitarian causes and even to journalistic and intelligence efforts.

These funds not only dwarf the less than $5 million sent to pro-Russian entities, but account for at least a fifth of overall non-state-mandated aid to Ukraine, marking the first time in history that cryptocurrencies have played an important role in a great conflict.

“Ukraine went big on crypto by offering donation addresses literally hours after the invasion, and it paid off,” said an Elliptic analyst who spoke to me on condition of anonymity. “Twenty percent of grassroots funds coming from cryptocurrencies is no mean feat,” they added.

If you've subscribed to this newsletter for any time, you'll remember that just a few weeks ago I questioned the usefulness of cryptocurrencies as a force for good, as hard-to-spend crypto tokens poured into Turkey and Syria in the days following the tragic region. earthquake. But in Ukraine, cryptocurrencies have shown some social utility.

So can cryptocurrencies claim to be a legitimate force for good? Possibly, but as cryptocurrency fans also say, the technology is neutral and can be used in many ways.

Of the nearly $5 million worth of cryptocurrency donated to pro-Russian entities, more than half of those funds went to military fundraising, with the majority originating from exchanges and mixing services, a particular part of cryptocurrency technology. which provoked the wrath of the West. governments in recent months.

These groups often provide expense reports on the Telegram messaging platform. Elliptic estimates that MOO "Veche," a military fundraising group active in the Donbas, has received approximately $1.8 million in bitcoin, which would make it the richest pro-Russian fundraising group by cryptocurrency holdings. .

Elliptic's investigation also highlights a "particularly brutal" use of cryptocurrency dating back to Rusich, a paramilitary fighting group known for neo-Nazi symbolism. The organization, also linked to the Wagner Group, has been involved in military campaigns in Syria and Ukraine.

On Rusich-affiliated Telegram channels, wallet addresses have been widely shared soliciting crypto donations. Those portfolios have had sanctions imposed by the US Office of Foreign Assets Control.but also the paramilitary group has tried to extort the families of lost loved ones by promising them the coordinates of their dead relatives in exchange for bitcoins.

“If you can't identify the bodies of those killed, don't turn them over. Take the coordinates of the exact place of burial. . . and offer relatives the details for $2,000 — $5,000. The money can be transferred to your bitcoin wallet.

Another caveat that could subdue cryptocurrency evangelists is that while Ukrainian donations have far outpaced Russian fundraising, the pace of donations has slowed noticeably.

Elliptic estimates that much of the more than $200 million donated to Ukraine was sent immediately after the invasion of Russia. After March 2022, the Ukrainian donation rate decreased. By contrast, Russian crypto fundraising shows no signs of slowing down.

“This is why many virtual asset services cannot afford to be complacent about this, because while funds from Ukraine have fallen, Russia is much more stable in terms of fund flow,” the Elliptic analyst added.

Before Christmas, a Ukrainian politician told me that Russia's use of cryptography would become a "big problem." If Russian crypto fundraising doesn't slow down in the coming months, he may be right.

What is your opinion on the role of cryptocurrencies on a global scale? As always, send me your comments at scott.chipolina@ft.com.

Weekly Highlights:

• The Federal Reserve issued a joint statement with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency highlighting liquidity risks to the banks of some sources of financing in the crypto markets. It is the latest evidence that US agencies are leaning heavily on US banks to divorce themselves from cryptocurrencies, a lesson some banks like Silvergate have learned. learned the hard way.

• Life took a turn for the worse for Sam Bankman-Fried this week when US prosecutors widened his criminal case against the former head of FTX. Thursday's updated indictment added charges including securities fraud and conspiracy to commit bank fraud, bringing an already lengthy charge sheet to 12. SBF's political donations were also in the spotlight, described as "made on behalf of others to hide the true source". of money and evading federal election law.”

• Hongkong put more detail in his plan to attract more crypto businesses to the territory by allowing retail investors to trade coins.

• The Securities and Exchange Commission issued a new offer to oppose Binance US's proposed $1 billion acquisition of assets belonging to Voyager Digital, the crypto lender that collapsed last summer. The SEC said the bailout package may violate securities law. I partnered with my editor Philip Stafford for the story, which you can read here.

Soundbite of the Week: Crypto's Losing Battle

Agustín Carstens, head of the Bank for International Settlements, said it was time for cryptocurrencies to admit defeat for one of their deepest beliefs: that it is a viable medium of exchange that rivals fiat currencies.

“A few years ago crypto assets and cryptocurrencies were somehow presented as an alternative to fiat money, I think the battle was won, the technology does not make reliable money.”

Mike Novogratz: a man who has a tattoo of the failed stablecoin Luna — he thought he would try to instruct the director of the BIS. read his answer here.

Data mining: Tether's dominance grows

Tether's stablecoin has long established itself as the largest in the crypto market, but scrutiny of its reserves and the growth of rival tokens have undermined its dominance in recent months.

New York's recent action against BUSD, the third largest stablecoin and thus a main rival to Tether, has reshaped the market again.

Since state regulators ordered Paxos to stop issuing new BUSD tokens, the Binance-branded coin has lost billions in market share.

By contrast, Tether's USDT is now more than half the market and has its highest share since October 2021, data provider CryptoCompare has found.