What happened
At approximately 10 p.m. ET Wednesday night, Russian military forces invaded Ukraine. At first, cryptocurrencies plunged in response to the news — but now, they’ve bounced back. As of 10:30 a.m. ET Friday, here’s how prices had shifted over the prior 24 hours for several of the biggest names in cryptocurrency:
So what
Here’s what seems to be going on: On Thursday, the big concern — strictly from an investor perspective — was that Western nations would levy crippling sanctions on Russia to punish it for invading its neighbor, and that this would be bad news for a broad range of investments. On Friday, the feeling is that Western nations will levy crippling sanctions on Russia to punish it for invading its neighbor … and that this is good news for cryptocurrencies.
As CoinDesk.com explains, “further deterioration in the financial situation could benefit [cryptocurrencies] as a means of capital savings for investors from Ukraine, Russia, and some nearby countries.” High-net-worth Russians in particular have been targeted for financial sanctions by Britain, the European Union, and the United States. Accounts of major Russian banks such as Sberbank and VTB Bank have been frozen, and there’s serious talk about entirely cutting Russia off from the SWIFT financial system that facilitates cross-border payments, money transfers, and asset transfers.
If this happens, so the theory goes, wealthy Russians may turn to cryptocurrencies as an alternative means to move money around — and the resulting increase in demand could boost the prices of all sorts of cryptocurrencies.
Image source: Getty Images.
Now what
Based on all that, one can understand why some investors would be trying to get ahead of the trend by buying up cryptocurrencies now. There’s just one problem.
That might not be how things play out.
As CoinDesk also explains, “cryptocurrency is an unlikely workaround for expanded U.S. sanctions against Putin’s government following the Ukraine Invasion.” The reason: “Russia probably is thinking about using bitcoin or other cryptocurrencies to evade sanctions, but [the Russian leadership] is probably concerned about those cryptocurrencies getting too much popularity within their own country, because that impacts their own control of their own monetary system, and therefore impacts their power.”
Indeed, several times last year, we saw reports that Russia’s Duma was moving to regulate or even ban trading in cryptocurrency within the country. Admittedly, in the days leading up to Russia’s attack on Ukraine, as the threat of a SWIFT cutoff became more immediate, Russia’s government backtracked on the idea of banning cryptocurrencies and shifted its stance more in the direction of intensifying crypto regulation. Presumably, this shows President Putin’s government hedging its bets in case it does get locked out of the international financial system. For now, however, the situation remains fluid.
I wouldn’t bet on a Russia-driven surge in crypto prices until we know which way the decision will fall on SWIFT.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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