Cryptos gain currency in conflict zones amid Russia-Ukraine war
While Ukraine is accepting cryptos as donations, Russia can use it to avoid economic sanctions imposed on it by the EU and the US
Cryptocurrency has shot into the limelight and acquiring some sorely needed validity amid the Russia-Ukraine war. As demand surges for this virtual currency, with Bitcoin’s market cap outpacing even the rapidly declining Russian rouble, it seems to have gained a sense of legitimacy, at least, in conflict zones, said experts.
It is not just offering some form of financial stability for fleeing Ukrainians leaving property and assets behind, it is crypto cash that is flowing into the coffers of Ukraine’s army and hacktivist groups. Even the Ukraine vice-president recently tweeted that their government was not averse to donations via cryptocurrencies and that the crypto community had given them more than $70 million.
Analysts believe that cryptos can also bail out Russia, which is grappling with severe economic sanctions imposed by the EU and the US, and the falling rouble. Ever since the war began, Russian central bank has even hiked up its interest rates to 20 per cent to stop depositors from removing their money from banks.
There is growing concern that Russian oligarchs and the government could use it as a tool to skirt the economic sanctions. But in the process, it would chalk out an entirely new path for cryptos.
According to crypto experts, the Russia-Ukraine war can serve to be a sharp turnaround for this currency making their performance more satisfactory than they are right now. In fact, with the recent gains, Bitcoin now has a higher market cap of approximately $835 billion, while the ruble has a market cap of around $626 billion.
These factors may end up making cryptos the favoured currency in conflict areas where the economy is gets battered. In such situations, countries are dealing with properties being destroyed, a spike in debt levels to finance the conflict, bank runs and a massive opportunity cost as money going to ramp up military equipment could have been invested to improve the economy.
And when customary financial frameworks fall apart, cryptos can morph into “alternate payment mechanisms”. Even gold is no longer feasible as people escaping war zones cannot carry it around dodging missiles and walking miles to cross borders into foreign lands.
Also read: Cryptic trend: Why Bitcoin plummeted as Russia invaded Ukraine
At this time, just recalling the private keys to your crypto may be the least fractious and the best option. Investors at large are viewing bitcoin and other cryptocurrencies as a good place to store assets again, which can be transferred anywhere and without the need for a third party. Since bitcoin and other digital currencies are often decentralised, not controlled by a central entity like a central bank.
The India story
In India, the crypto industry got some stamp of recognition when the finance minister Nirmala Sitharaman said in her budget speech last month that income from crypto trading would be taxed at 30 per cent. Though her announcement did not make crypto legal, it did give official recognition to these digital assets, bringing much-needed legitimacy to the sector.
This recent development with Russia however will make the authorities view this digital asset with a jaundiced eye. If Russia clearly resorts to bitcoins and other cryptocurrencies to avoid the harsh effects of economic sanctions, this may prompt RBI to get more stringent towards these digital currencies in the future. The RBI anyway has maintained that banning private cryptocurrencies maybe the best option for the country and is waiting for an opportunity.
