Crypto Prices Surge as Russia-Ukraine Conflict Continues

It's not clear whether crypto prices rose on hopes talks might de-escalate the conflict or speculation that sanctions could push increased crypto usage.

After a significant dip on Feb. 24 when Russian troops first invaded Ukraine, crypto prices have steadily rebounded in recent days. Bitcoin (BTC) rose above $41,000 today, after briefly dipping below $35,000 last week.

As media reports share shocking images of the invasion, fears grow of the human cost of an ongoing conflict. According to the UN, more than 500,000 people have already fled from Ukraine into neighboring countries.

Governments around the world have committed to unprecedented sanctions, pushing cryptocurrencies into the limelight again. Some speculate that Russia could use crypto to evade sanctions, while the Ukrainian vice prime minister has called on crypto platforms to freeze Russian accounts. What's more, various campaigns to send crypto aid to Ukraine have raised over $20 million, according to CoinDesk.

Russia-Ukraine talks raise slim hope of de-escalation

It seems the prospect of talks between Russia and Ukraine was part of the reason crypto rose. On Feb. 28, representatives from the two countries met at an undisclosed location on the Belarus border and spoke for five hours. No agreement was reached, beyond a commitment to continue talking.

Meanwhile, Russian troops continued to advance on Ukraine's capital city, Kyiv. According to the Associated Press, blasts were heard in Kyiv even as negotiators engaged in the first round of talks. Crypto analysts warned that the ongoing geopolitical uncertainty means recent gains could be short lived.

Crypto and conflict

The prospect of peace talks are not the only reason for crypto's rebound. Speculation on how crypto could help Russia evade strict global sanctions has also driven prices up. Some analysts also argue that the conflict could cause the Federal Reserve to ease up on its proposed economic tightening measures, making riskier assets more attractive again.

Several crypto experts have pointed out that digital currencies could allow Russian companies to continue to operate internationally. The concern is that the anonymity of blockchain transactions, especially on decentralized exchanges, could enable wealthy individuals to get around measures aimed at freezing their assets.

As a result, the European Central Bank is calling for speedy crypto regulation to avoid this problem. In a similar vein, Bloomberg reports that the Biden administration is asking crypto exchanges to ensure digital currencies don't become a tool to evade economic sanctions. Several exchanges, such as Coinbase and Gemini, are considering what steps to take.

As with most aspects of the crypto industry, the idea that Bitcoin could help Russia circumvent sanctions is not as simple as it seems. For example, cryptocurrencies are traceable, meaning the crypto ecosystem could enforce sanctions just as other financial systems do. Plus, at some point, those crypto assets would have to be converted into a fiat (traditional) currency if you want to use it to buy food or medicine, for example. And that could be complicated.

What this means for investors

The mixed messages around crypto's role in the conflict highlights the chaotic nature of cryptocurrencies. Cryptocurrency is a pretty new asset class, and there's a lot that isn't clear -- including the role it may play in this conflict.

On the one hand, cryptocurrency has been used to raise money to support Ukraine, and various crypto companies have cut services to Russia. FTX, a leading global crypto exchange, gave $25 to every Ukrainian customer. On the other hand, Russia has become a hub for illegal crypto activity. The majority of last year's ransomware attacks originated in Russia, and many believe Russia could use digital currencies to get around economic sanctions.

One step crypto investors can take is to only use cryptocurrency apps and exchanges that require know-your-customer verification (KYC). This is a key tool in the fight against money laundering. If you don't want to be part of the illicit side of the crypto industry, KYC is a good place to start.