Future of Money Special Issue (#82 - 26 Feb 2022): How Crypto is Helping Ukrainians? Is Russia Preparing for Sanctions with New Crypto Legislation?

Dear Friends, 

Welcome back to this special issue of my newsletter that will focus on the role crypto is playing in both Ukraine and Russia following the recent attacks.

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1. How Crypto is Helping Ukrainians After the Attacks?

The outbreak of war with Russia and mass evacuations from Kyiv and other urban centres have thrust Ukraine into the global spotlight.

The topic of Ukraine, interestingly enough, provides this newsletter with an opportunity to explore a very fascinating phenomena in today’s global crypto ecosystem: Ukraine has some of the highest levels of crypto adoption on the planet, ranking fourth in Chainalysis’ most recent Global Crypto Adoption Index .

Source: Chainalysis

Nearly $8 billion worth of cryptocurrency flows through the country each year, with daily volumes competing with levels of interbank exchanges conducted in fiat currency.

Chainalysis also shows that the country is gaining an increasingly outsized role in crypto transaction made with international counterparts, placing second only after Turkey.

 Source: Chainalysis

That brings us to one of the biggest factors that explains crypto’s soaring popularity in Ukraine: a lack of other options. 

For example, whilst sending Bitcoin around the world is quick, cheap, and settled instantly, sending fiat in and out of Ukraine often requires excessive amounts of paperwork and bureaucratic red tape.

Meanwhile, inflation and the threat of imminent war with Russia have combined to hammer away at Ukraine’s national currency - the hryvnia.

And access to global stock markets is often out of reach and inaccessible to average Ukrainians. 

That leaves real estate and crypto as the only viable investment options in the country.

And although Bitcoin and crypto markets, in general, are highly volatile, major crypto-assets still feature more liquidity than an apartment and lower levels of friction than Ukraine’s national banking system.   

Crypto has taken a central role especially following the National Bank of Ukraine issuing a statement with a number of resolutions, including suspending the foreign exchange market, limiting cash withdrawals and prohibiting the issuance of foreign currency from retail bank accounts.

This also may explain why $1 USD stablecoins were trading at $1.10 in the days following the Russian attacks.

Kyiv’s central business district is now filled with advertisements for crypto exchanges, with the country making a concerted effort to attract top-level crypto talent from abroad. 

Source: New York Times

These efforts are being led by Ukraine’s new Ministry of Digital Transformation , which is aiming to turn Ukraine into a global hub for the world’s top crypto firms.

The new ministry has released video ads encouraging tech start-ups, including crypto firms, to relocate to Ukraine.

And the Ukrainian parliament passed a law on virtual assets in the days before the attacks. 

Unlike El Salvador , however, Ukraine’s bill does not recognize Bitcoin or other crypto-assets as legal tender . Rather, the bill ensures that Ukrainian and foreign crypto companies can operate legally.

And numerous global tech and crypto firms have teams based in Ukraine, with those businesses now raising concerns about the safety of their Ukrainian employees, and in some cases evacuating team members from harm’s way, although that has been significantly more difficult in recent days due to the military mobilization.

The global crypto community, meanwhile, has been actively engaged in trying to help the Ukrainian people.

Ryan Selkis of Messari, for example, called on the crypto community to support the Ukrainian people via crypto contributions. 

Another example is crypto exchange FTX giving $25 to each user based in Ukraine.

Or Crypto.Com (for full disclosure: a current sponsor of some of my educational content) donating $1 million and urging the crypto community to help.

And there have been numerous fundraising efforts lead by the Ukrainian crypto community, both in Ukraine and globally, leveraging blockchain technology not only as a medium for receiving donations but also providing transparency. 

And over the past couple of days, cryptocurrency donations have been pouring into the country. 

Over $5 million dollars have been raised via crypto at the time of writing according to Elliptic. 

But growing levels of crypto adoption in the country also raise a handful of concerns, chief amongst them Ukraine’s high levels of entrenched corruption and organized crime . 

Ultimately, the developments in recent days have shown not only the solidarity that exists within the crypto community but also how crypto can help in such situations. 

It will be very interesting to see the growing role that crypto plays in Ukraine moving forward, especially as levels of instability around the country continue to increase. 

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Pic of the Week

2. Is Russia Preparing for Sanctions by Passing Crypto Legislation? 

There have been a lot of crypto-related developments in Russia in recent weeks, raising the question as to whether embracing crypto could be a hedge the Russian government is trying to use in the event Western sanctions increase materially.

In recent months, Russia’s Finance Ministry and its Central Bank have been deadlocked over ongoing regulatory talks , with the recent news indicating that whilst crypto investments would be legalized, crypto payments would be banned. 

But things appeared to dramatically shift in the days preceding the attacks on Ukraine. 

For instance, the Russian Ministry of Finance officially submitted draft regulations on crypto, which aim to clarify crypto payments for goods and services, caps on how much people can invest in crypto, and a framework for crypto mining. 

Let's not forget that Russia is the 3rd biggest crypto mining centre globally after the United States and Kazakhstan .

Russia is also a very large market for the crypto industry, with about 12% of crypto in circulation around the globe owned by Russians. 

The Russian Central Bank also officially launched the digital ruble trial , successfully completing the first CBDC transfers among citizens.

The launch aligns with the bank’s plans to debut the first digital ruble transactions in early 2022.

Three banks within the 12-member digital ruble pilot group have already integrated with the Central Bank’s CBDC platform, with two of those banks completing a full transfer of digital rubles using mobile banking apps. 

The Russian government has even been advised by policymakers to explore accelerating crypto regulations to prepare for sanctions. 

For example, the round of sanctions announced by Western governments after Russian forces invaded Ukraine is built upon, amongst other things, the traditional global banking system, including SWIFT and the global correspondent banking network.

But some analysts believe that cryptocurrencies could provide the Russian government with a potential workaround to mitigate some of the worst effects of sanctions. 

The ability to circumvent sanctions via crypto underscores the increasing role that cryptocurrencies are now playing within the global financial system.

As we’ve discussed before in this newsletter , countries around the world that have been targeted with Western sanctions, like Iran , have tried to generate revenue from the cryptocurrency sector, in particular, Bitcoin mining. 

Source: Elliptic

As we noted here last week, the growing presence of Hydra , a darknet market that has assumed a majority share over the total darknet market size over the past several years, complicates matters even further.

Such darknet platforms may allow bad actors or sanctioned entities to launder proceeds of crypto criminal activity or even potentially evade sanctions.

Especially that according to certain media reports, there may be links between such darknet marketplaces and Russian authorities.

Source: Chainalysis

In fact, according to Chainalysis , both Russia and Ukraine rank amongst the top three countries in the world when measured by value either sent to or received from global darknet markets.   

Source: Chainalysis

Ultimately, whilst crypto on its own will not insulate Russia from some of the hard-hitting effects of sanctions, it is very interesting nonetheless to see the Russian government shift some of its hardline positions on digital assets once the move towards war with Ukraine heated up.

The unfortunate bystander of this may unfortunately be Russian crypto users. Depending on how sanctions unfold, will be interesting to see if crypto platforms change their approach to Russian customers. This will be a big decision as Russia is a big market for most large crypto platforms.

Definitely a development to follow.

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Money Quote of the Week

“Acquaintance, n.: A person whom we know well enough to borrow from, but not well enough to lend to.”

Ambrose Bierce

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Henri Arslanian

*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with. This newsletter is for educational purposes only and none of its content should be construed as investment or financial advice of any kind. 

Who is Henri?

Passionate and focused on the future of finance and money, Henri Arslanian is the PwC Crypto Leader and Partner, the former Chairman of the FinTech Association of Hong Kong, and an Adjunct Professor at the University of Hong Kong where he teaches the first FinTech university course.

Henri advises many of the world’s leading crypto exchanges, investors, financial institutions, and tech firms on their FinTech and crypto initiatives as well numerous governments, regulators, and central banks on Fintech and crypto regulatory and policy matters.

With over 500,000 LinkedIn followers and 45,000 newsletter subscribers, Henri is a TEDx and global keynote speaker, a best-selling published author, and is regularly featured in global media including Bloomberg, CNBC, BBC, CNN, The Wall Street Journal, The Economist and the Financial Times.

Henri was named by LinkedIn as one of the global Top Voices in Economy & Finance and is the host of the FinTechCapsules™ and CryptoCapsules™ social media series.

Henri was recently named by Onalytica as the #1 most influential individual on Finance globally on LinkedIn out of 50k+ individuals working at the top professional services and management consulting firms in the world.

Chambers Global named Henri the “highest-profile FinTech consultant in Hong Kong”, Blockchain Asset Review named him the “Most Influential Crypto and Blockchain Thought Leader in Asia”, and Asian Private Banker awarded him the “FinTech Changemaker of the Year” award.

Henri’s latest book “The Future of Finance: The Impact of FinTech, AI and Crypto on Financial Services” published by Palgrave Macmillan, was ranked as one of Amazon’s global top 10 best-sellers in financial services and was recognized as one of the “Best FinTech Books of All Time” by Bookauthority.

Before joining PwC, Henri was with a FinTech start-up and previously spent many years with UBS Investment Bank in Hong Kong. Henri started his career as a financial markets and funds lawyer in Canada and Hong Kong.

Henri speaks five languages including English, French, Armenian, Spanish, and Mandarin Chinese.

He holds a Masters in Chinese Law from Tsinghua University; a joint Global Executive MBA from Columbia Business School, London Business School, and Hong Kong University; a Bachelor of Law from the University of Montreal (Dean’s List of Excellence) and a Masters in Transnational Law from the University of Sherbrooke, where he was awarded the Governor General of Canada Gold Medal for Academic Excellence for having graduated with the highest grades of the university.

You can learn more about Henri on his website (www.henriarslanian.com ) and you can reach him at info@henriarslanian.com