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Posted on Mar 10th, 2022

The Russian Invasion of Ukraine: Sanctions, Cryptocurrency, and the Role of Neutral Money


Haan Palcu-Chang

Crypto Specialist

Russia’s invasion of Ukraine has galvanized much of the developed world into condemnation of Vladimir Putin’s expansionist policies. More significantly, though, these words have also been backed by actions. Nations and corporations from around the world have unleashed an unprecedented wave of economic sanctions on Russian's government and economy, which could have far-reaching consequences for cryptocurrencies.

Key Takeaways

  • To date, over $60 million USD worth of crypto has been donated to Ukraine relief efforts.
  • Unprecedented sanctions could signal a shift from the U.S. dollar as global reserve currency.
  • Some argue that crypto and other virtual assets could be used by bad actors to bypass sanctions.
  • Cryptocurrency is politically neutral, but the technology will and can be used for things people are for or against.

Unprecedented economic sanctions

Chart - Russia is now the world's most sanctioned country

Oil and gas giants like Shell and BP have divested from Russian holdings, at the cost of billions of dollars of lost equity and revenue. (1) Major Russian banks have been cut off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT)—the global messaging service that securely facilitates fund transfers for 11,000 financial institutions in over 200 countries. (2) Probably most consequential of all has been the partial freezing of the Russian Central Bank’s $630 billion war chest, 50% of which is being held in foreign banks. (3)

Russia had planned to use these reserves to sanction-proof its economy. However, the American and European banks that provided custody for these assets are refusing to do business with them, after launching an attack on Ukraine. (4) With these funds unable to prop up a ruble that was already dropping in value due to the news of war and incoming sanctions, Russia’s currency plummeted 50% to the U.S. dollar in a few days. (5)

A watershed moment for crypto

In many respects, the conflict in Ukraine has put a microscope on digital currencies and reenergized the discussion on their potential benefits and drawbacks.

Crypto donations continue to pour in around the world

The global crypto community has rallied behind the Ukrainian government and its people. Crypto donations currently valued at over $60 million dollars USD (6) have been sent to the Ukrainian government by people all over the world.

These crypto donations have been done quickly, efficiently and without the bureaucracy or slow turnaround inherent in international banking or foreign-aid agreements. For many people, this has reinforced the value proposition of neutral and trustless digital money. (7) As a result, we are left wondering if this war could signal a seismic paradigm shift with regards to how many nations view cryptocurrencies.

Some call crypto a double-edged sword for Ukraine

This has been a tale of two stories, though. While cryptocurrency donations have been able to bolster the coffers of the Ukrainian government, there is still fear that the neutrality of the technology could be used in ways that would hinder Ukraine’s ability to defend itself.

Mykhailo Fedorov, Ukraine’s vice-prime minister, sent a tweet last week that urged crypto exchanges to ban Russian users. The thought being that this would mitigate the ability of Russian oligarchs and businesses from skirting sanctions through virtual assets.

Mykhailo Fedorov, Ukraine’s vice-prime minister, sent a tweet last week that urged crypto exchanges to ban Russian users.

This prompted a backlash from many prominent crypto exchanges that argued moves like this would disproportionately harm ordinary Russians, while not doing much in the way of actually helping the Ukrainian government. (8)

Though it may be hard to swallow for some, this assertion by leaders in the crypto industry does actually seem to be correct for the time being. Adoption of digital assets is still far too nascent for crypto to provide any immediate escape valve for Vladimir Putin. Russia’s half trillion dollars in largely immobilized reserve assets is equivalent to 5-10X the daily trading volume of all cryptocurrencies combined. There’s just not enough liquidity in the system to currently make much of a difference. (9)

Weaponization of the U.S. dollar could lead to nations looking for a new reserve currency

On a longer time horizon, however, the situation could be much different. Countries like Russia and China were already worried about the mounting threat of a global financial system dominated by the U.S. dollar that could potentially be weaponized against them—both have aggressively reduced their holdings of U.S. dollar assets over the last several years.

The Biden administration’s freezing of Afghanistan’s U.S. currency reserves last year did little to assuage those fears. (10) But those actions pale in comparison to the scale and severity of the sanctions Russia now faces. There is no doubt that watching what is happening to the Russian economy has many nations urgently re-evaluating their reliance on the U.S. dollar, not to mention their participation in the current financial order.

China is already working hard to build a viable ecosystem around its digital Yuan. And while there are sure to be countries that will join a Chinese-led financial system, there are probably an increasing number of nations that are also looking towards El Salvador and their adoption of Bitcoin as legal tender.

Decentralized digital assets like Bitcoin can be moved, bought, and held without third parties, no matter what your government is up to. In particular, the Bitcoin-as-digital-gold narrative could have more resonance now that people have seen what can happen to the national currency of a large economy when faced with international sanctions.

Legislation and political discourse in small countries like Panama, Cuba, and Paraguay have already opened the possibility that cryptocurrencies can be adopted as legal tender there. (11) This discussion is likely to expand to more populace nations, though, as the conflict in Ukraine, and its subsequent economic ramifications, force countries to think more deeply about their financial agency.

Moving forward

No matter what side of the isle you stand on, the conflict in Ukraine has highlighted both the positive and negative characteristics of cryptocurrencies. These protocols have been designed to be politically neutral, but it doesn’t mean that the people who use them are. While the latter fact can be unpalatable to some, neutral digital money could prove alluring to a growing number of people and countries.

–Haan Palcu-Chang, Crypto Content Specialist


(1) Shell follows BP out of Russia as oil companies abandon Putin, CNN Business:

(2) These are the 7 Russian banks banned from SWIFT – and the two exempted, Euro News:

(3) Banks are stopping Putin from tapping a $630 billion war chest Russia stockpiled before invading Ukraine, Fortune:

(4) Putin's big bet: Sanction-proofing Russia, NPR:

(5) Russian people face 'catastrophe' as ruble crashes and sanctions bite: CBC News:

(6) Live Updates: Ukraine Government Turns to Crypto to Crowdfund Millions of Dollars, Elliptic:

(7) Ukraine accepts dogecoin, other cryptocurrencies for donations as funding rises to $35 million, CNBC:

(8) Possible End to Dollar Dominance?: Permanent Alterations to the World Order Post-Ukraine, The Wire:

(9) Ukraine crisis: Crypto exchange boss rejects Russian user ban, BBC News:

(10) Using Crypto Tech to Promote Sanctions Compliance, Coinbase:

(11) These Countries May Be Next To Accept Bitcoin as Legal Tender, Yahoo:

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