The impact on crypto of the Russia-Ukraine situation

Has the Ukraine-Russia situation had a major impact on crypto dynamics?

Following the very successful digital asset donation drive by the Ukrainian government in the aftermath of the invasion of Ukraine by the Russian Federation and the subsequent sanctions imposed on key Russian entities and businesses by global powers, many analysts and journalists in the blockchain industry are looking at the potential impact of the current situation in Ukraine and in Russia to see if it has had or will have any major repercussions on cryptocurrency market dynamics.  

The reality is that as of March 31, 2022, there has been no significant change in cryptocurrency transaction activity at the main exchanges. The current movement of major Russian immigrant populations should be consistent with new users, but that hasn’t been the case, though research has suggested that trading for rubles has increased. To that end, it is too early for the effect of Russia’s suspension from SWIFT and other financial sanctions imposed in February and March 2022 to have had an impact on international crypto payments to Russia. 

The graph above shows that there has been a steady decline in transaction activity at cryptocurrency exchanges over the past six months (as of March 31, 2022), with fund flows falling even more after the onset of war in Ukraine. We believe that the reduction is likely due to overall market conditions, as prices cooled in late 2021.

Strong motives for crypto use as a result of migration 

Russian diaspora, who are mostly located in the Commonwealth of Independent States (CIS), are likely to seek alternative methods for remittance, of which cryptocurrency is a possibility.  

We have identified the following potential drivers for cryptocurrency adoption among Russian migrants: 

• High cost of international remittance back to the Russian Federation 

• Ineffective replacement systems for remittance (eg. SWIFT versus MIR) 
• Greater support for cryptocurrencies in popular destinations for Russians abroad 

We believe that the current international political actions against the Russian government are more likely to have a catalyzing effect on cryptocurrency adoption among Russian migrants. However, these will likely be alongside other existing informal value transfer systems.    

We are waiting to observe the following as indicators of an increase in cryptocurrency use by Russians overseas: 

• Increase in Russia-based cryptocurrency exchanges  
• Increase in exchanges allowing conversion to Rubles 
• Increase in Russian-owned cryptocurrency exchanges 
• Withdrawal of Russian support at major exchanges, particularly those with Europe and North America facing operations. 

When sanctions bite: rising costs at lower values 

Because of the international sanctions now levied against the Russian Federation’s government, Russian banks have been effectively cut from the major international fiat payment network, SWIFT. Domestically, the impact of this is less of an issue, however, for Russian people that live and work abroad, it may have consequences.  

There are around 11 million émigré Russians, the third-highest globally behind India and Mexico, meaning Russians abroad are a huge population that will be affected by this. According to World Bank Data payments to Russia from overseas contributed over $10 billion in 2021 to the Russian economy, around 0.6% of Russian GDP. Not least, the cost associated with sending money home to support families is likely to rise alongside rising living costs due to trade issues between Russia and other regions and a likely devalued native currency. 

Russian Migration: Countries of Destination in 2021 

Sending money home (remittances) may turn into crypto 

Typically, money transfer institutions are the most cost-effective and popular method for sending money, through bank transfer, peer-to-peer and online payment services are also feasible. However, with the recent announcement of sanctions, large service providers such as Western Union, Wise, and Moneygram have suspended services to Russia, leaving few options available to ordinary people. 

Cryptocurrency is certainly an option, and though the volatility of bitcoin may be particularly concerning. So-called stablecoins, such as Tether, or more censorship-resistant decentralized currencies like Maker Dao’s Dai may offer an alternative.   

Large international and local exchanges will see increases 

Many larger, international exchanges have supported the sanctions effort against Russia, though critically have not blocked ordinary users, some exchanges have been quite vocal about their position on their social platforms. This would suggest that crypto is a viable alternative to the “ordinary” diaspora Russian population.  

Our analysis shows that many countries with high Russian migrants lack domestic exchanges. In these cases, we would expect users to seek accounts at larger international exchanges that offer fiat support for their local currency.  

For example, despite hosting nearly half a million Russians, Tajikistan has few local crypto exchanges, so we won’t see many direct transfers from Tajikistan to Russia. We’ll see them utilizing major exchanges that offer services in these countries.   

Contact Crystal to learn more about our blockchain intelligence and analytics service at [email protected] 

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