What the Conflict Means to Bitcoin
February 21 — Russian president Vladimir Putin formally recognized and deployed troops to two pro-Russian breakaway regions in eastern Ukraine.
U.S. President Joe Biden stated that the move was “the beginning of the Russian invasion.” February 24 — the invasion was undeniable as Putin launched what he dubbed a “special military operation.”
The economic impacts of the rapidly developing situation were felt almost immediately. As the world raced to hit Russia with sanctions, traditional markets trended down. In the U.S., the Dow Jones Industrial Average began a four-week slide in spite of the fact that the U.S. would reveal a promising jobs report.
In Russia, understandably, the economic situation was worse than anywhere else except for maybe Ukraine. The Russian stock market plunged following the invasion, dropping more than 33% as the invasion began.
Russia’s currency, the ruble, cratered with its stock markets. Both the ruble and their stock markets have continued to fall, with markets being halted on numerous occasions as the conflict persists.
“Dear stock market, you were close to us, you were interesting, rest in peace, dear comrade.” After a week of economic collapse, a Russian financial analyst toasted the end of his country’s stock market during an interview on Russian channel RBC.
What About Bitcoin?
Bitcoin quickly became a topic of interest for crypto investors as the Russian invasion developed. February 21 — bitcoin was trading close to $38,000.
The world’s largest cryptocurrency has been dancing around the $38k level for months. After a volatile January that saw it drop as much as 20%, bitcoin rallied into February amidst geopolitical tensions.
Similar to traditional markets, the day of the invasion, bitcoin dropped. It retested the mid $30,000s but still didn’t fall toward implied long-term support at $30,000.
Within 24 hours of the drop, bitcoin roared back above $38,000 and steadied as the world waited with everyone else to see how events would unfold in Ukraine.
February 28 — bitcoin jumped more than 10%, closing the month well above my $42,000 target. Bitcoin managed a February close of $43,193.23. It continued to rise into March before running out of steam and revisiting the $38,000–42,000 range.
Crypto Surge
Putting the bitcoin price aside for a moment, the Russian invasion of Ukraine has resurfaced numerous topics of interests when it comes to crypto.
There’s been a surge of crypto transactions in both Russia and Ukraine following the invasion, most of which is still occurring on local, centralized exchanges.
Crypto transactions, primarily with bitcoin, tend to spike in countries where there is economic or political instability — Nigeria and Venezuela come to mind.
According to data from Chainanalysis, Kenya is the world leader in peer to peer bitcoin transactions. African countries such as Kenya, Nigeria, and Zimbabwe in particular have seen upticks in bitcoin adoption as of late due to both recognition of unreliable local currencies and their increasingly tech savvy populations.
In times of war or seemingly absent governments, citizens turn to alternative means of wealth storage, one of which is now bitcoin. This is especially important when citizens are needing to cross borders with their money. Gold also remains a tried and true way to store wealth, although it is only a viable option for wealth storage in times of crisis to those who already own or have easy access to gold.
Gold did jump to yearly highs following the Russian invasion of Ukraine but remains roughly 10% off of its 2020 highs. The recent crisis has, however, been a boon.
Long term, bitcoin continues to outperform gold, but gold isn’t going anywhere. Bitcoin just seems to be emerging as a more accessible, digital gold-like asset.
Want more content like this? I write a weekly email.
How Much Bitcoin Should You Own?
Crypto Donations
On top of local crypto trading and accumulation, donations are flooding into Ukraine from all around the world via bitcoin, ethereum, USDT, and other top cryptos.
Crypto has been highlighted as a censorship-resistant option for donations in 2022. Prior to the invasion in Ukraine, crowdfunding platforms blocked donations to the Canadian anti-vaccination protests, and supporters turned to bitcoin instead.
Bitcoin is neutral, it is agnostic. Put simply — it’s an open-source monetary network. There’s no company or team behind bitcoin, so it remains outside the reach of government and corporate actors.
When Canadian prime minister Justin Trudeau called for certain crypto platforms to freeze accounts, several self-custody platforms had to clarify to the government that doing so wasn’t even possible.
Self-custody is when you, as an individual, are the only one who can access your crypto. Not even the company whose wallet service you’re using can access it.
Sanctions and Exchanges
Sanctions are hitting the Russian government hard and having an even bigger impact on Russian citizens. There is also a growing trend amongst international corporations to cut off services to Russians amid the conflict.
In line with that trend, Ukraine requested that cryptocurrency exchanges cut off service to Russian citizens. Three major exchanges, Kraken, Coinbase, and Binance, were outspoken in their decision to refuse to cut off services to Russian citizens.
Coinbase CEO Brian Armstrong had this to say — “We believe everyone deserves access to basic financial services unless the law says otherwise.”
A Binance spokesperson said — “We are not going to unilaterally freeze millions of innocent users’ accounts.” Binance has, however, disabled card usage from sanctioned Russian banks for select users.
Kraken CEO Jesse Powell was perhaps the most outspoken from the crypto exchange community, taking to social media to express his defiant refusal to sanction any of Kraken’s users unless legally required.
Powell said — “I understand the rationale for this request but, despite my deep respect for the Ukrainian people, Kraken cannot freeze the accounts of our Russian clients without a legal requirement to do so.”
Powell didn’t stop there either, going as far as to call out the United States for its global military actions, saying — “Besides, if we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, step 1 would be to freeze all US accounts. As a practical matter, that’s not really a viable business option for us.”
Needless to say, the above comment drew extreme both criticism and support, creating a highly polarized debate following the end of his statements.
The recent crisis in Ukraine has brought a lot of hot button issues to the surface. It’s touched a nerve when it comes to bitcoin in particular because bitcoin is a borderless, global currency that is not governed by any one nation state or entity.
I agree with Powell on one point without any objection — “Bitcoin is the embodiment of libertarian values, which strongly favor individualism and human rights.”
Bitcoin was created in the midst of war — it was dubbed “The Crypto Wars.”
While the internet was still being created, cypherpunks (a movement of libertarians, computer scientists, and technologists) did all they could to prepare individual users for the coming online world. Internet privacy was and still is a very real and grave concern. Having tools like bitcoin and allowing digital banking to maintain some semblance of privacy was a hill that cypherpunks were willing to die on.
Last week, I discussed Phil Zimmermann, the creator of Pretty Good Privacy (PGP) software. His software enabled users to encrypt their online messaging.
The U.S. government declared Zimmermann and his software were a threat to national security. They fought him and his peers for years, attempting to shutdown the free and open-source software movement. The government failed, and PGP and similar software is now used in some of the biggest messaging platforms in the world — WhatsApp, Signal, and even iMessage.
The Crypto Wars are still raging, which is why Powell and others feel so strongly that they cannot enforce unilateral restrictions on their users at the expense of innocent citizens. It is the innocent citizens of both Ukraine and Russia who are suffering the most from the current conflict and whose lives are now forever impacted by it.
Can Putin Use Bitcoin?
An ongoing discussion is whether or not Putin can utilize bitcoin and crypto to subvert international sanctions. The answer is not a simple yes or no.
In short — I believe it’s very difficult for Putin and the Russian government to turn to bitcoin or crypto to salvage their increasingly poor economic situation.
Cutting off Russia from SWIFT and other international payments rails don’t mean bitcoin or other cryptos are a natural alternative. The amount of money that Putin would need to move on these crypto networks is massive and, compared to the amount they’d need to trade, their crypto exchange options are too thin.
With the ruble, in particular, the ruble-to-bitcoin exchange options for Russia are estimated to only allow trading close to $200,000 at any one time.
To subvert international sanctions in a meaningful way, Putin would need to be moving billions between the ruble and bitcoin, which doesn’t seem feasible.
Contrary to popular belief too, bitcoin and crypto are highly regulated globally. It is not easy for a bad actor to move large sums of money between crypto and fiat.
Crypto liquidity and regulations are a problem for Putin. While Russia is home to some of the largest bitcoin miners in the world, bitcoin, for Putin, will remain what it is for most bitcoiners — a hedge. He will not be able to do much in terms of turning any ruble reserves to bitcoin, and he will be stuck holding any bitcoin the government may have access to or that it may seize from its country’s miners.
What About Price?
Bitcoin did decouple from traditional stock market performance in the days following the Russian invasion of Ukraine. That said, the jury is still out if it will break free.
Since 2017, bitcoin and crypto have largely tracked alongside traditional markets for a variety of reasons — one being that large crypto holders are also large equity holders. When markets tanked in March 2020 around COVID fears, bitcoin fell too. Large equities traders rushed to save their positions by taking from their “safe haven” and speculative assets like bitcoin. Small, retail holders of both equities and assets made things worse with panic selling.
The point is — global monetary markets are all connected. As bitcoin and crypto adoption increase, that interconnectedness across all markets will only strengthen. Access to the U.S. dollar, euro, equities, gold, bitcoin, and so on is greater today than any time prior in history. Because of that, investors are exposed everywhere.
Bitcoin can stand out from the pack. As I’ve mentioned, war and economic or political instability often highlight some of bitcoin’s best attributes.
We hate to see the real world use case for bitcoin in action though — it usually means certain people are being persecuted or are suffering in some way.
But, bitcoin is freedom money. People are waking up to that fact and, unfortunately, some people are going to learn it in a much harder way than others.
Conclusion
We can’t do much beyond wait and see how things progress in Russia and Ukraine. My thoughts and prayers are with the Ukrainian people and the innocent Russian citizens suffering from the ongoing conflict.
Like it or not, bitcoin is once again on the world’s stage. I do believe that the good bitcoin can do, especially for individual wealth preservation and humanitarian assistance, will shine bright this year.
Bitcoin can be a small light in the darkness of an increasingly chaotic global economic environment. It exists for a reason, and that reason is being realized day by day.
My bitcoin price analysis around the March close will be largely contingent upon what develops in the coming days.
Tentatively, I’m looking for bitcoin to at least remain within 10% of $38,000, preferably on the upside, in order to signal a move higher in early Q2. I still believe a new all-time high is possible in 2022.
First, bitcoin needs to convince us it has established $38k support. Then, it needs to make a push for $50k, which, as we’ve seen in the past, could be a challenge.
Large, round numbers bring psychological resistance, and $50,000 is one of those — it’s even more imposing than $40,000.
Bitcoin’s been there before though, and the current all-time high is roughly 40% above $50k so, while it might provide some resistance, bitcoin is more than capable of pushing higher.
