After several days’ intense sell-off, bitcoin soared over 10% on Feb 28, providing much-needed relief to investors.
Influenced by the Russia-Ukraine crisis, the cryptocurrency market saw a steep price slump as investors turned to assets with fewer risks. Many believe that bitcoin’s safe asset narrative has broken. But now it seems bitcoin is getting popular in Russia and Ukraine.
Can cryptocurrencies save Russia?
The United States, the European Union, the United Kingdom, and Canada issued a joint statement announcing that several major Russian banks were banned from using the SWIFT system.
Analysts believe banning Russia from using the SWIFT system is one of the most severe financial measures, which will cause a major blow to Russia’s foreign trade and international settlement. To bypass the sanction, many analysts believe Russia would turn to cryptocurrencies, and evidence shows that Russia may have been preparing for this day.
In October 2021, the U.S. government warned that digital assets could potentially undermine the effectiveness of U.S. sanctions. U.S. and EU sanctions rely heavily on banks to enforce them. Banks are responsible for tracking and blocking transactions of sanctioned entities or individuals. But with its decentralized nature, bitcoin could avoid being tracked. Russia now ranks third in bitcoin mining. According to Marc van der Chijs of First Block Capital, on Monday one bitcoin worth $46,000 on some Russian exchanges, $5000 more expensive than those on U.S. exchanges. “There’s not normally a difference [between the Russian and US price of bitcoin] because there are arbitrage possibilities,” van der Chijs told The Post. “That seems to indicate that this urge in bitcoin price is because of Russian buying.”
Ukrainian people choose bitcoin
In Ukraine, bitcoin has also become the go-to solution. The National Bank of Ukraine has limited daily cash withdrawals to 100,000 hryvnias ($3,350) to control cash outflows from the country. After the announcement on Feb 24, Trading volumes on Kuna, a Ukrainian cryptocurrency exchange, spiked immediately. According to data from Coingecko, Kuna’s trading volume increased from $1.4 million to $4.8 million, with the majority of trading made in hryvnia (UAH). This is the highest trading volume recorded on the platform.
Before this war, Ukraine was one of the few countries that supported cryptocurrencies. Ukraine’s parliament recently passed a law legalizing cryptocurrencies. Ukraine is now accepting donations made in cryptocurrencies.
Although bitcoin is a high-risk asset, the crisis is showing the decentralized and store-of-value nature of bitcoin. While bitcoin’s short-term performance is still subject to market sentiment, it is one step further to becoming a mainstream asset.
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