While the conflict between Ukraine and Russia appears to be limited to a military level, it could have far-reaching implications for much of the world. On the one hand, economists expect this to lead to a sharp rise in inflation, especially since Russia is the world's largest exporter of natural gas and the world's second-largest oil seller.
In addition, hundreds of thousands, if not millions, will be displaced from Ukraine, creating another refugee problem for the world, especially in Europe.
Then there are cryptocurrencies. While the health of the cryptocurrency market and industry may not be the most focused spot at the moment, there is no doubt that this protracted battle will affect Bitcoin and its competitors. In fact, one could argue that it has already had an impact, not least since the Bitcoin market fell more than 10% in a single day in the initial rumors of a Russian invasion on Feb. 24.
While the possibility of Russia evading sanctions through crypto could lead to increased regulatory scrutiny of Western businesses, the conflict could benefit the market.
Cryptocurrencies offer real-world utility to those in need
On Feb. 24, Bitcoin plunged to a low of $34,740 as investors fled riskier assets. Russia's march into Ukraine was clearly a great concern at the time, but given the resistance of ukrainian troops and the perception that sanctions against Russia were not as severe as one feared, the situation at BTC (and other assets) subsequently improved. In fact, BTC has grown by a staggering 25% since it plunged to $34,740 to over $43,500.
Notably, cryptocurrencies have once again proven their suitability as a crowdfunding and charitable giving tool. According to the latest statistics from analyst firm Elliptic, the Ukrainian government and pro-government NGOs have received about $24.6 million in various cryptocurrencies.
This total is the product of 26,000 different donations, one of which donated $300,000 in bitcoin and the other with $1.86 million worth of bitcoin.
The donation of these cryptocurrencies not only benefited the Ukrainian government and military, but also showed how cryptocurrencies can help break down barriers to international transactions and activities. In other words, cryptocurrencies are a resilient bond between different peoples and nations.
In fact, this is the basic message conveyed by other recent cryptocurrency-related headlines in Ukraine. For example, some say bitcoin and other cryptocurrencies have allowed them to flee Ukraine before the war reaches their region. Despite the suspension of ATM withdrawals, some people are able to transfer their BTC/cryptocurrency to a hot wallet and use them to pay for travel to other parts of Europe.
Essentially, the War in Ukraine supported the oft-repeated claim that Bitcoin ownership enhances individual sovereignty and freedom. And, if more and more Ukrainians turn to Bitcoin and other cryptocurrencies during the crisis, the latter may help popularize the concept of crypto as a liberating tool.
How the Ukraine-Russia conflict affected cryptocurrencies
Given that the Russian ruble has depreciated by up to 25% since Russia was sanctioned, we are likely to see a significant increase in bitcoin and cryptocurrency ownership in the country. For now, Bitcoin's market capitalization has surpassed the ruble, and more than 11% of Russian adults currently own the cryptocurrency, a figure that could climb further as people seek to preserve their wealth.
Sanctions, on the other hand, are aimed at so-called oligarchic individuals, who the international community may find out that they use cryptocurrencies to evade adverse financial consequences. This is undoubtedly the idea of the U.S. government, as it has already begun negotiations with prominent U.S. cryptocurrency exchanges on how to prevent Russian individuals from using Bitcoin and other virtual currencies to circumvent sanctions.
The concern here is that Russian people and entities will continue to use cryptography to successfully transfer their wealth around the world. If this is the case, the industry could face backlash from regulators and government agencies who may seek to severely limit the use of cryptocurrencies.
Of course, the situation in Ukraine and Russia is currently very volatile and unknown, so it is difficult to predict whether the target Russians will accept cryptocurrencies in an important way. However, given that the crisis has increased bitcoin trading volumes in Ukraine and Russia, this possibility still exists. Therefore, traders should be prepared that although the market has improved recently, the market may reverse in the future, depending on the outcome.