Crypto assets involved in the Russia-Ukraine conflict

On February 24, the day when the Ukrainian-Russian conflict broke out, the crypto asset market plummeted. Bitcoin, the pillar asset, once fell to US$34,222, a daily drop of nearly 10%. Its so-called "digital gold" safe-haven asset attribute is questionable.

Data from blockchain data analysis company Elliptic shows that as of 16:00 UTC on February 28, the Ukrainian government and non-governmental organizations providing support to the military have raised $22.2 million through more than 23,000 crypto asset donations.

Affected by the situation, Russia, the other side of the war, is experiencing a sharp shock in the financial market. On February 28, the ruble depreciated by 30% against the US dollar, and the Russian Central Bank urgently raised the benchmark interest rate to 20%. Against the backdrop of sanctions imposed on Russia by the United States and other Western countries, there are constant discussions about whether crypto assets can help Russia circumvent sanctions.

$22.2 million in crypto assets flowed into Ukraine

"Standing with the Ukrainian people, now accepting cryptocurrency donations." On February 26, when Ukraine's official Twitter account posted the donation addresses of Bitcoin (BTC), Ethereum (ETH) and the US dollar stablecoin USDT, netizens once thought it was a scam. It was not until the Deputy Prime Minister and Minister of Digital Transformation of Ukraine Mykhailo Fedorov retweeted it that the authenticity of these addresses was confirmed.

After the donation addresses were posted, blockchain data analysis company Elliptic has been tracking the flow of crypto assets to these addresses. As of February 28, the addresses listed by the Ukrainian Twitter account have received $14.8 million in crypto assets from 18,561 transactions, including two Bitcoin donations with a total value of $1.7 million.

In addition to the Ukrainian government accepting donations, Come Back Alive, a non-governmental organization supporting Ukraine, has also received millions of dollars in crypto asset donations. On February 24, the organization raised funds for the Ukrainian army on the content creation fundraising platform Patreon, but the platform closed Come Back Alive's fundraising page on the grounds that "military activities violated policies."

Another token project called “Help Ukraine” is also raising funds. It has been donating ETH to a fundraising campaign called Support Ukrainian Sovereignty, which promises to distribute its funds to various charities in Ukraine. The campaign has raised $281,769.

Cryptocurrency donations to Ukraine

According to Elliptic statistics, as of February 28, Ukraine has raised $22.2 million through more than 23,000 crypto asset donations.

From the Ethereum browser, it can be seen that the ETH address posted by the Ukrainian official Twitter account is still pouring in various crypto assets that meet the Ethereum standard, and many of the ETH have been transferred to a certain exchange. The Ukrainian official Twitter account did not explain how the funds were used. It is also unknown whether the fundraising of the other two non-governmental organizations can be truly implemented.

Elliptic reminds crypto users that they have discovered some fraudulent crypto fundraising scams that take advantage of the Russia-Ukraine war and advises users to be cautious to avoid being scammed.

After confirming that Ukraine accepted crypto asset donations, the country’s Deputy Prime Minister and Minister of Digital Transformation Mykhailo Fedorov also kept on Twitter, calling on Internet companies to stop certain services to Russia, including calling on mainstream crypto asset exchanges to block Russian users’ addresses, “not only to freeze addresses related to Russian and Belarusian politicians, but also ordinary users’ addresses.”

Fedorov's call was met with disgust from some netizens. Some people were trying to educate him about the censorship resistance of decentralized cryptocurrencies, while others believed that this went against the purpose of crypto assets and would harm the interests of ordinary Russians. Soon, Binance, one of the world's largest crypto asset trading platforms, told the media that it would not unilaterally freeze the accounts of innocent users. The platform also stated that it was making donations through its internal charity system to help Ukraine's humanitarian crisis.

Can Russia circumvent sanctions with cryptocurrency?

In addition to crypto assets, Ukraine has also opened up traditional bank financing channels. One side of the war is raising funds, while the other side, Russia, is facing economic sanctions from the United States and other Western countries.

According to overseas media reports, the United States is expanding sanctions against Russia, which will prevent Americans from doing any transactions with the country and freeze any of its assets in the United States. The U.S. Treasury Department said the decision will apply to the Central Bank of Russia, the Russian Ministry of Finance, and the Russian National Wealth Fund "Russian Direct Investment Fund (RDIF)".

After the US action, France and Switzerland also joined the sanctions against Russia. Previously, the US and the EU decided to remove Russia from SWIFT, the Society for Worldwide Interbank Financial Telecommunication. It is reported that multiple parties are negotiating the list of Russian banks to be removed from SWIFT.

Amid the turbulent situation, after the Moscow Exchange opened on February 28, the exchange rate of the US dollar against the ruble quickly jumped from the previous day's closing price of 83 to 90, reaching a high of 108.13. The maximum depreciation of the ruble was 30%.

On the same day, in order to protect its own assets from the impact of sanctions, Russia began to prohibit brokerages from executing the sale of Russian securities by foreign entities and individuals, and at the same time urgently raised the benchmark interest rate to 20%.

Against the backdrop of the escalating Russia-Ukraine crisis, sentiment in the crypto asset market improved on the evening of February 28, Beijing time, with Bitcoin rising from around $38,000 to as high as $41,957, a 24-hour increase of 10.32%. As of 5:30 a.m. on March 1, it was quoted at $41,600.

Ruble trading volumes surge against BTC and USDT

Kaiko, a crypto asset data company based in France, said that since the start of the Russian-Ukrainian conflict on February 24, trading volumes of Russian rubles (RUB) and Ukrainian hryvnias (UAH) against cryptocurrencies on centralized exchanges have soared to their highest levels in months. "The volume of RUB to Bitcoin and UAH to Bitcoin has grown much faster than the volume of other trading pairs such as BTC-USD."

As Ukraine uses crypto assets to raise funds to fight the war, the outside world is also discussing whether Russia can evade sanctions from Western countries through crypto assets.

Tom Robinson, chief scientist and co-founder of Elliptic, believes that since there is no central controller who can impose their morality on users, crypto assets can be used to raise funds for the Ukrainian army and help Russia evade sanctions. "No one can really stop it from being used in any way."

One question is whether the volume of crypto assets can support Russia's capital flow needs.

Russia’s crypto activity has historically dwarfed transactions processed by traditional financial institutions. A recent study by blockchain data firm Chainalysis showed that Russia collected about $400 million worth of crypto assets from ransomware attacks last year, accounting for 74% of global criminal revenue. However, these amounts account for only a fraction of the $46 billion in foreign exchange transactions processed by Russian financial institutions every day.

In an interview with The Washington Post, former U.S. Assistant Secretary of State Juan Zarate said that in this case, the challenge facing the Russian state economy and individuals is that cryptocurrencies are not mature enough as part of their financial system, which does not allow them to circumvent the multinational sanctions being implemented on a large scale.

As Kenneth Rapoza, a columnist for Forbes.com, put it, “The Kremlin already knows what sanctions look like, but no government knows what Bitcoin will look like as a foreign exchange reserve or a means of paying for imported goods from all parties.”

In addition, Russia's attitude towards cryptocurrencies is not friendly. In January this year, the Russian Central Bank called for a ban on Bitcoin and other cryptocurrencies, believing that they would threaten the stability of the Russian financial system and pose risks to the monetary policy and economic well-being of Russians.

In Rapoza’s view, Bitcoin is unlikely to save Russia, “not only because the RCB (ruble) is not friendly to BTC, but also because the example of a central government cracking down on Bitcoin may not make it viable. If Russia does start trying, but is stopped by other countries, then investors will begin to doubt decentralization and Bitcoin will soon fall to $20,000.”