Role of cryptocurrencies during an international conflict

moneycontrol.com:

Ankitt Gaur and Anshul Dhir

The ongoing Russia-Ukraine crisis may have the signs of what many are calling a ‘War by Crypto’. With over $60 million-worth of digital assets being transferred to DAOs and funds maintained in favour of Ukraine, suggests that this digital economy is hard at work.

Cyptocurrencies, or crypto-assets, cuts both ways in as much as the advantage presented to Ukraine is also available to Russia. According to some reports, Russia has been considering accepting Bitcoin as payment for its oil and gas exports.

The ongoing conflict is the first time crypto-assets have come into prominence from a financing point of view, and this poses several new questions as to how conflicts are financed. It opens a new front on how economies adapt during conflicts. What is the role of crypto-assets during a war?

Safe Haven Bet

Geopolitics is shifting the paradigm of how sovereign currencies react. Since the beginning of the conflict, depositors on both sides of the war have been making a bank run to withdraw their money. Owing to this, the Russian central bank raised its interest rates substantially to stabilise the freefall of the rouble. With sanctions doing the rounds and the values of sovereign currencies falling, people generally move their money to safer havens such as gold. But this time around, it's Bitcoin that has taken precedence. Surprisingly, even the US Dollar, considered to be the global reserve currency, is not immune to this shift.

People are preferring converting fiat to Bitcoin or other virtual digital assets (VDAs), and receiving funds and transacting in crypto assets over fiat currencies. This is despite the fact that off late VDAs have been behaving like a risk asset and not like a safe haven touted till