Are cryptocurrencies like Bitcoin and Ethereum suitable as crisis currencies?

Especially in view of the war in Ukraine, the discussion about the role of Bitcoin, Ethereum and Co. as a crisis currency is coming up again. Can cryptocurrencies become a safe haven in the event of an international crisis? And how resilient is blockchain really to crises? Experts from Sutor Bank, specializing in crypto issues, have a clear position here – and at the same time say what cryptocurrencies are not suitable for?

SThe power of social networks first manifested itself in 2009 in Iran and in 2011 during the Arab Spring with Twitter. With them, the masses could be mobilized and coordinated. “This Twitter moment for cryptocurrencies can currently be seen during the Ukrainian war,” says Hartmut Giesen, crypto expert at Sutor Bank in Hamburg.. As under a magnifying glass, the possibilities and limits and thus the opportunities and risks facing Janus became clear.

Blockchain as a crisis-resistant payment infrastructure

These are two issues that are linked on the one hand, but on the other hand make a clear difference: on the one hand, a decentralized and thus crisis-proof broadband infrastructure for data transfers money and values, on the other hand, the function of crypto-currencies as an alternative and store of value independent of the banking system to national currencies.

The decentralized blockchain infrastructure allowed the Ukrainian government to fund the war in part with a cryptocurrency crowdfunding campaign. Ukraine was able to raise nearly €100 million in cryptocurrencies through a donation appeal that included wallet addresses for various coins and tokens from Bitcoin to Dogecoin. “This shows the speed of cryptocurrencies, which can be sent directly between participants at any time without detours via banks,” says Giesen. And this via almost indestructible paths due to their decentralization – only electricity and an Internet connection are necessary. Giesen believes that if this campaign had to be carried out through traditional banking networks, Ukraine would probably not have had large donations today.

Cryptocurrencies as a refuge in major crises?

Crypto values ​​can still be transferred through the blockchain infrastructure even if there is no functioning banking infrastructure anymore – if you want to paint this scenario on the wall.

Anyone who has parked money in crypto assets in time – unfortunately, these are probably quite a few Ukrainian citizens – can then fall back on them, for example, by escaping. Deposits in a Ukrainian regional bank are more difficult to use in case of doubt.

Hartmut Giesen, crypto expert at Sutor Bank

For other crisis contexts, the focus is more on the store of value than on the value transfer function: “Russian citizens bought ten times more cryptocurrencies per day on Binance, the largest exchange of crypto in the world, in the early days of the crisis than before. Not to avoid sanctions, but to protect their savings from inflation or, for example, to prepare for their own emigration,” explains Giesen.

As in other cases around the world, this shows that cryptocurrencies are very suitable as an alternative to currencies in the event of fundamental upheavals in the evolution of (monetary) policy. “Decentralized blockchains allow access to more stable currencies through stablecoins or directly to cryptocurrencies, which have less volatility in the context of financial crises,” Giesen explains. On the other hand, cryptocurrencies have not proven to be a safe haven in less disruptive crises, such as normal capital market crashes.

Cryptocurrencies are less suitable for circumventing sanctions

On the other hand, cryptos are less suitable for circumventing sanctions, although they should be used for this in some cases. As a general rule, oligarchs cannot buy yachts or football clubs with Bitcoin, Giesen believes. To mine their wealth, they need fiat currency, not cryptocurrencies. “Fiat-to-crypto transitions, i.e. exchanges or dealerships, are now so well monitored and regulated that it is hardly possible to trade large amounts of cryptocurrency without explaining the origin. crypto assets.” And all the Western governments have said that the regulations are getting even tighter here. “Not only does this make it difficult to exchange for fiat currency, but it generally prevents the acceptance of larger payments in crypto assets, because the party accepting the payment almost never gets the sum converted into fiat currency if the origin is dubious,” says a cryptography expert. Keep pouring.

In addition, transactions on blockchains are as transparent as possible, at least leave a lot of traces, even if they cannot always be attributed. “You don’t necessarily know the participants in a blockchain because the addresses of the wallets where the cryptocurrencies are held are pseudonymous,” Giesen explains. But the movements of cryptocoins or tokens must be transparently traced from their creation to their current position in the wallet. Intelligent software is now able not only to identify suspicious transactions, but also to assess transaction patterns so that they can be attributed to individual actors. “And these can then be identified through off-chain investigative work,” says Giesen.

In the opinion of Hartmut Giesen, the cryptocurrency market is not big enough for such dimensions in transactions to move sums of an amount relevant for sanctions, whether by states or individuals. To put the numbers into perspective: Russia’s daily income from gas and oil supplies is around 700 million euros. The 24-hour trading volume of Bitcoin and Ether combined is just 26 billion. “So if Russia wanted to trade its gains for one of the two strongest cryptocurrencies via an unsupervised route, that would be around 3% of daily trading volume,” Giesen explains. And even if the corresponding volumes are sufficient, all this cannot pass without traces.

The ‘Economist’ aptly wrote in an analysis of the crisis use of crypto assets: It could be that cryptos are much more useful for those who act openly than for those who operate in the shadows. Perhaps the creation of an emergency reserve in cryptos will become a requirement for the prevention of private crises.

Hartmut Giesen, crypto expert at Sutor Bankpartially