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02-03-2022|Crypto

The price of bitcoin has increased as demand in Ukraine and Russia has increased.

The Russian invasion of Ukraine has boosted the price of bitcoin by increasing demand for cryptocurrencies in both countries.

On a number of exchanges, both globally and locally, bitcoin has been trading at a premium to the Ukrainian hryvnia, indicating considerable demand. Bitcoin was trading for $45,894 in hryvnia on Binance, the world's largest cryptocurrency exchange. It was trading at $46,847 on Kuna, Ukraine's largest exchange, and had previously gone as high as $51,240.

Bitcoin was recently trading near $44,000 in US markets Tuesday night, up more than 17% from Sunday evening, according to data from CoinDesk.

Since the beginning of Russia's invasion, there has been a boom in bitcoin trade volume in exchange for rubles on Binance. According to data from Binance, around 1,792 bitcoins changed hands in the ruble/bitcoin trading pair between Feb. 20 and 28, compared to only 522 in the nine days prior.

Russia has been effectively cut off from the global financial network as a result of Western sanctions, and Ukraine has enforced severe capital controls.

In Ukraine and Russia, cryptocurrency is very popular. On a worldwide adoption index produced by analytics firm Chainalysis, Ukraine came in fourth place. According to a Russian government data, Russian residents have more than 12 million cryptocurrency wallets with a total value of roughly 2 trillion rubles ($20 billion).

"The crisis in Ukraine has highlighted bitcoin's value as an alternative monetary network," Timo Lehes, co-founder of trading site Swarm Markets, said.

A demand-driven increase in bitcoin is a departure from its recent pattern of trading in accordance with risk assets such as tech stocks.

Bitcoin's surge this week erased February's losses. The majority of other cryptocurrencies were also up. Ether was up 4.7 percent at the time of writing. XRP was up 0.7 percent at the time of writing. Cardano was up 0.9 percent and Avalanche was up 3.3 percent.

The Nasdaq Composite Index, which is heavily weighted in technology, sank 1.2 percent on Tuesday.

Because bitcoin trades 24 hours a day, it has been leading risk assets rather than trailing them in some circumstances.

When Russian President Vladimir Putin declared his invasion of Ukraine on Wednesday, the stock markets in the United States were closed. Bitcoin dropped roughly 6% overnight before rallying 13% the next day. After a day of frantic trading, US markets ended the day modestly higher on Thursday.

During the afternoon of Friday, Feb. 18, and the evening of Monday, Feb. 21, Bitcoin fell about 9% due to reports of the increasing crisis in Ukraine. The stock markets in the United States were closed on Monday for the holiday, so they didn't get a chance to respond to the news until Tuesday. When they did, the main indices all dropped by more than 1%.

Cryptocurrencies have also attracted attention due to their potential as a conduit for Russians attempting to circumvent sanctions. While cryptocurrencies haven't been included in the penalties yet, the White House is considering including them.

Ukraine's vice prime minister, Mykhailo Fedorov, urged on Twitter on Sunday morning that bitcoin exchanges block Russian accounts. "It's critical to sabotage ordinary users as well as the addresses associated to Russian and Belarusian politicians."

Mr. Fedorov of Ukraine did not specify if the request was personal or on behalf of the government. Attempts to contact him were unsuccessful.

In Russia, cryptocurrency exchanges have mainly refrained from placing any voluntary limitations.

Binance stated that it would not impose a blanket ban, but will take action against those sanctioned by Western governments. Coinbase, Kraken, and KuCoin have similarly stated that they will not freeze Russian accounts until there are penalties or legal reasons to do so.

"We do everything we can to preserve human rights and asset security," stated KuCoin CEO Johnny Lyu. "Actions that raise tensions to the point that innocent people's rights are jeopardised should not be promoted."

Crypto exchanges, like regulated banks, often cooperate with court orders and legal requests for data about their users. There was no indication that the Ukrainian government, acting alone or in cooperation, would take legal action to compel Russian users to be blocked.

On the technological side, exchanges have strengthened their infrastructure in recent years and would be able to apply these punishments if necessary, according to Jack McDonald, CEO of PolySign, a company that develops crypto-asset storage software for exchanges and other custodians.

The exchanges have the ability to track accounts and transactions, as well as the origins of deposits. Funds obtained by well-known hacks, for example, can and will be blacklisted.

"Using bitcoin to dodge sanctions will be difficult for Russia," Mr. McDonald predicted.

Even yet, prohibited users would be able to buy and sell their cryptocurrencies on unregulated exchanges or even more opaque marketplaces.

Russia was cut off from the Swift network, a bank-owned consortium that handles millions of daily payment orders, as part of Western sanctions.

Western sanctions and restrictions are "bolstering the argument for blockchain solutions that will compete with the SWIFT network,” said Oanda analyst Edward Moya.

Investors are purchasing now, he said, anticipating a flood of investment focused on the development of those items.

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