The brutal, savage, unprovoked invasion of peaceful Ukraine by the barbaric, uncivilized Russians has given rise to a laboratory experiment in the role of crypto currency in contentious times. Crypto has gone to war.
1. The Ukes are using crypto to fund their defense.
2. The Russians are using crypto to avoid the sting of economic sanctions that have their entire banking system — entire economy really — on the ropes.
3. The crypto exchanges, upon being asked to freeze all Russian accounts, have refused to comply — Coinbase, Kraken, Binance.
Ukraine and crypto
Ukraine has tapped into crypto by creating a multitude of wallets into which supporters can donate crypto currency to fund the RESISTANCE.
Thus far they have raised more than $52,000,000 using some of the following tactical thrusts:
1. More than 60,000 individual donations have been made to Ukrainian government and nongovernmental organizations.
2. An Ethereum-based Ukraine DAO raised $6,500,000 by auctioning off an Ukrainian flag non-fungible token.
3. Ukrainian target wallets have accepted Bitcoin, Ether, Tron, and Polkadot.
A CryptoPunk NFT worth more than $200,000 was also donated. Approximately 70% of crypto donations are Bitcoin and Ether which is what the Ukrainians prefer as they are easier to use on the deployment/buying side.
4. The Ukrainian crypto war effort is advised by Ukraine-based Kuna Exchange founder Michael Chobanian. Bravo, well played!
5. Already more than $14,000,000 has been spent by Ukraine to provide military equipment, food, and gas. Most of the trades have been in cryptocurrency.
6. Spending is controlled by the Ukrainian Ministry of Defense.
As noted, Ukraine has used crypto both to receive donations, but also to spend for war goods. It is a complete digital, crypto effort.
As an aside, Ukraine has also sold almost $300,000,000 in War Bonds.
To put this into perspective, Ukrainian GDP was $185,000,000,000 ($543.8B on a PPP basis) and the cost to run the government is $44,500,000,000 annually. Ukraine has a 20% individual income tax rate and an 18% corporate tax rate.
Russia and crypto
Russia is the target — rightfully so — of economic sanctions that have resulted in the following:
1. The Ruble tested all time lows yesterday v the USD at 110 R to the $.
The Russian Central Bank has abandoned any efforts to intervene in foreign exchange markets to prop up the Ruble and has required Russian companies to convert 80% of their foreign currency reserves and revenues into the Ruble thereby stealing the companies’ foreign currency.
2. The Moscow Stock Exchange remains closed, but indications are that it is going to endure a massive sell off. The Father of All Selloffs!
Sovereign nation Russian bonds are now junk as ratings dive.
This will be a bond blood bath as institutional holders of Russian bonds in funds are forced to dump their Russian bonds as they are no longer “investment grade.” The funds by charter cannot hold non-investment grade paper.
3. London traded shares in Sberbank, one of the sanctioned Russian banks, dipped to $0.045 from a earlier price of $16/share. Ouch. It would be worth it as wallpaper.
An American traded Russia ETF is down more than 72% in the last two weeks indicating that private investors are rejecting Russian companies.
Apple, Dell, Shell, UPS, FedEx, Maersk, Canadian Goose, Disney, Expedia, Adidas, BP, major sports leagues, ExxonMobil, Harley-Davidson, General Motors, Volvo, Daimler Benz, Norges Bank, international law firms like Baker McKenzie are severing ties with Russian clients, Visa, Mastercard, — all gone and the list grows.
Notably, WeWork will remain open. Haha.
4. Interest rates have more than doubled thereby drying up business liquidity.
5. Banks are paying as much as 8% interest on 90 day dollar denominated certificates of deposit and 20% on Ruble deposits.
6. All of the above will drive an already high inflation prone economy into a death spiral of inflation. We are talking Weimar Republic inflation. The drop in the value of the Ruble — all time low v the USD — made all imported goods incredibly more expensive immediately.
7. These financial depredations will immediately impact the Russian standard of living except for the oligarchs who have their own problems with western countries seizing their yachts.
8. On top of this, many western companies are just shutting down their Russian business units and leaving while the entire credit card ecosystem is dead.
Putin started the war with approximately $630,000,000,000 in currency reserves, but that will disappear with the requirement to fund his invasive army and to shore up the country.
With this backdrop, it is not hard to see why oligarchs and any Russians would be attracted to crypto as a store of value in a economy in which the currency is toilet paper, stocks are going to become worthless, and the ability to anonymize transactions is vital to survival.
The crypto exchanges
The use of cryptocurrency by bad actors is a provable thing:
1. Approximately 75% of more than $400MM in crypto denominated ransomware payments have ended up in Russia.
2. North Korea has funded its missile development program with illicit crypto.
3. Criminals continue to use cryptocurrency on the Dark Web with impunity.
With that as a backdrop Binance, the largest crypto exchange, has categorically refused to cooperate in any way with any request to hamper Russian crypto users. This may will turn out to be a very short sighted decision as American politicians are already clamoring to regulate crypto exchanges under the coloration of a brutal war and evidence of money laundering. This calls attention to the American banking requirement to “know your customer.”
1. Binance, Coinbase, and Kracken refuse to cooperate. If you cannot cooperate in the resistance against the wholesale slaughter of children, women, and innocents when Russia invades a neighbor, where is your moral tuning fork?
2. Crypto has had a war bounce since late January in the $35,000 range to a current value of $44,000. Not huge, but obvious.
3. I predict crypto will be harshly regulated because of this refusal to cooperate with the “good guys.” I have always been a skeptic, but I have very much become resigned to a credible place for digital currency, but now based on this alone, I would hold the pitchfork as it is inserted into the chest of crypto.
4. Both Russia in Siberia and North Korea have used bitcoin mining as a moneymaking proposition.
Bottom line it, Big Red Car
Crypto has gone to war on both sides.
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car.
Fight on, Ukraine. Resist. Fuck Putin. Fuck Russia.
