Cryptocurrency Neutrality in Times of WarMarch 1, 2022
As a response to the Russian invasion of Ukraine which began last week, the Western authorities began a series of measures that should restrict access of the same country to the global financial system. So far, it is still unclear what consequences will the Russian Federation face as these restrictions come into place, although the drop in the value of the ruble has so far been drastic. However, the measures promise to go deeper and remove the Russian banks from the SWIFT system, rendering any modern pathways of money transactions next to impossible.
Such a cutoff is unprecedented; many financial and geopolitical experts label it a world-historical turning point, which ends the idea of a unified economic world in the post-Soviet chapter of history. At the same time, the decision will push Russia and Russians towards other alternatives when it comes to the prospects of financial transactions that take place on a global level. Some believe that many will turn to bitcoin and other digital currencies, which are by default completely neutral in the state of any conflict. At the same time, the infrastructure for the widespread use of bitcoin in Russia is already in place in many ways, mainly because of the turbulent yet expansive relationship that the country has with cryptocurrencies.
Sanctions and Restrictions
Since the start of the invasion of Ukraine, the sanctions and financial restrictions on individuals and institutions have come with huge momentum and pacing. The US Treasury Department cut off the two biggest banks in Russia from all USD transactions on a global level. It also seized the assets of a range of Russian institutions and wealthy individuals. The EU did the same and also targeted assets from President Vladimir Putin, just like deputy and chief diplomat of the federation, Sergei Lavrov.
While China, a huge economic power and a big partner of Russia, did not opt to do the same or even verbally present its option of the invasion that is counter to the Moscow narrative, the damage has still been huge. Finally, the country has also been cut off from SWIFT as well, after days of hard negotiations inside of the EU. At the same time, these are just the financial implications of the sanctions. Many additional economic measures are also in place and target both the Russian Federation and its international systems.
The non-financial sanctions are also coming to Russia in a barrage. The US decided to restrict a range of tech exports and so did Taiwan, which will stop its semiconductor industry from dealing with Russia. Norway began an action of seizing yachts belonging to Putin allies and examining shipping routes around its nation. Elsewhere France already stopped one ship inside of its sanction rules. In the domain of sports and entertainment, Russia is also getting into a position of massive isolation. Numerous sports competitions are now banning its participation, including Formula 1 and FIFA.
Esports competitions are also leaving behind any affiliation they had with the Russian organizations or individual competitors. Practically all sports events in Russia that have an international level of competition are now canceled. Big movies, like the new Batman installment, are not going to be shown in the country. Lastly, all of Europe has closed down its airspace for Russian civil aircraft. All of this shows a growing picture of physical, economic, cultural, and even civilizational isolation.
After many years of back and forth argument between the critics of Kremil and its supporters, it is now hard to deny some basic truth. Russia is an authoritarian state that decided to attack another sovereign European state openly and with a massive land invasion. While much of its war machine remains that of the USSR, the present-day corridors of power do not belong to a communist technocracy, like China, but a state that is slowly sliding into a rogue status with a singular figurehead that has all of the characteristics of a dictator.
Putin, who is a former KGB agent, created a web of influence and extortion that connected the wealthy with the armed forces, all under his direct command. The money of the ill-conceived privatization is now mostly in their hands and for the first time, they are using it to stage the biggest war in Europe in over 75 years. There is a sense that the Putin regime planned for the entire special operation, as it dubs it, to pass over quickly. Nothing of the sort has happened and instead, the anger of much of the world is now raining on Russia. At the same time, friends of the regime and few and far between. More worryingly for Putting, it appears that those who do support it cannot do much to help it.
With the measures starting to bite, the question arises naturally – will Russians reach for digital currencies to compensate for the pressure? Total Russian export and import flow comes to around 570 billion USD on a yearly basis. The bitcoin network could accommodate that level of flow in theory and is guaranteed to remain neutral. The network processes around 20 billion USD on-chain attractions every 24 hours. That adds up to about seven trillion USD per year, which is a dozen times bigger than the Russian financial churn. But, that would not be something that can go unnoticed.
At the same time, the change in the nature of the network use would also immediately kickstart a level of volatility that would make any cross-country deals on this scale all but impossible. Instead, what is more likely is that ordinary Russian citizens will begin using bitcoin’s BTC token for their needs. For example, freelancers that work for companies and individuals in the West could start taking their fees in crypto. However, the potential of that process is not huge for a country that is so quickly spiraling into financial instability. Setting up wallets and finding means to accommodate these transactions takes weeks and months, but it looks like the Russians by then will have many bigger problems than cross-national financial dealing.