DAVID BUCKHAM: Crypto at a crossroads

Having now, at this time of huge global uncertainty, come face-to-face with the true countenance of totalitarianism, it seems petty — even abhorrent — to be troubled with the price of bitcoin.

On February 24, when Russian forces invaded Ukraine, trivialities such as the intellectual pursuit of decentralised finance and the obsession with cryptocurrencies, should have been left behind as the world faced an authentic existential threat — a modern-day, heavily weaponised version of fascism.

There are at least four reasons to be radically concerned for the future of the world. First, there is the relentless march of Russian soldiers towards Kyiv, with the ultimate goal of toppling Ukraine’s democratically elected government. Second, for the first time since the Cuban missile crisis, there is the real possibility of nuclear war. Third, as a result of Covid zero policies in the East, coupled with the immediate economic consequences of war, there are now extreme supply shocks on basic necessities, such as wheat, grain, oil and gas.

This may mean protracted economic recession worldwide — the result of raging inflation combined with interrupted growth. Central banks will be unable to intervene meaningfully. Given the extreme volatility in the commodities markets, and the economic ramifications of sanctions, contractionary policy will be politically impossible.

Lastly, and most urgently, there are now more refugees in Europe than there were after World War 2. A humanitarian crisis is unfolding before our eyes.

But there is one reason to be enormously optimistic. For the first time since the brief period of moral certainty that followed the defeat of Hitler in 1945, the world has galvanised around the project of rejecting Vladimir Putin, and authoritarianism in general. Volodymyr Zelensky and the courage of the Ukrainians has awakened, from a deep slumber, the spirit of Western liberal ideology and the responsibilities of freedom. This phenomenon of collective purpose has been incredible to witness, instilling real hope that Ukraine and the West will overcome.

While extensive sanctions are being imposed against Russia, not only by national governments but also by companies that are self-sanctioning at significant cost, there must, at the very least, be a prick of conscience for those who still, in the face of this enormous social disruption, continue to defend the ideology of decentralised finance.

Russian oligarchs and ordinary citizens are attempting to evade sanctions by transferring their wealth out of rubles and into cryptocurrencies, undermining the entire global project of sanctions. On March 1 the price of bitcoin, as the prime example, jumped by 16% as the US announced escalating sanctions on Russia, in particular on its central bank.

Similarly, since the war began, "privacy coins" such as Monero and Zcash — lauded for the anonymity they afford users — have experienced significant increases in trading volumes and price.

Ben Caselin, head of research and strategy at crypto exchange AAX, says this has primarily been driven "by traders speculating on the possibility that we will see capital flight".

Addressing the use of crypto exchanges to avoid Russian sanctions, in March a group of US policymakers that included senator Elizabeth Warren and Senate banking committee chair Sherrod Brown, wrote to US Treasury secretary Janet Yellen, urging the government to ensure sanctions were enforced in the cryptocurrency industry too.

Predictably, there was strong pushback from crypto advocates, who argued that a blanket ban on Russian accounts on crypto exchanges grated against the spirit of decentralised finance. "If people want to avoid sanctions there’s always multiple methods," argued Changpeng Zhao, CEO of the world’s largest crypto exchange, Binance, in an interview with CNN. He added that if Binance banned all Russian users, they would simply migrate to other crypto platforms.

Surely, at this point in the evolution of the Western psyche, we should reject childish notions and embrace multilateralism. We must also recognise that were it not for banks and other financial institutions, the implementation of sanctions would not have been possible in the first place.

And beyond the bravery of the Ukrainian people and of their president, without these institutions, the global response to Russia’s invasion may have been entirely derelict.

*David Buckham is CEO of Monocle Solutions and one of the authors of The End of Money