How Bitcoin and a Crypto Exchange Became Part of Ukraine’s War Effort

The founder of Ukraine’s largest cryptocurrency exchange, Kuna, has been sleeping only a few hours a day since Russia invaded his country.

Trading of cryptocurrencies on Kuna has jumped since the war began. The surge is, in part, a consequence of strict capital controls implemented by the Ukrainian central bank: limits on ATM withdrawals, restrictions on the country’s official electronic-currency system and suspension of the foreign-exchange market. But cryptocurrency and Kuna are also providing a vehicle for outsiders to donate to Ukraine, raising funds for the government and relief efforts.

Michael Chobanian is operating Kuna from the western part of Ukraine after leaving Kyiv. He said he had moved his staff and the exchange’s infrastructure outside the country before the invasion. Mr. Chobanian spoke to The Wall Street Journal via recorded messages to save time. At the moment, everything is being done in an ad-hoc fashion.

“That’s the reality I have to live in,” Mr. Chobanian said.

The Ukrainian government and private aid groups have raised about $51 million in crypto from more than 89,000 donations since the invasion started last week, according to the analytics firm Elliptic. Most of that has been coordinated by Mr. Chobanian and Kuna.

On Kuna’s landing page for a fund it set up to accept donations, it says: “Let’s stop the war. Let there be peace. In crypto we trust, for Ukraine we pray.”

The crypto donations have helped finance military equipment, medical supplies and other goods, Elliptic said.

While activists, politicians and even terrorist groups have used cryptocurrencies to raise funds in recent years, it has never been done by a national government, said Tom Robinson, the co-founder of Elliptic.

The amounts aren’t large compared with other funding sources—the Biden administration proposed sending $6.4 billion in aid and Ukraine raised $270 million in bonds on Tuesday to help fund its war efforts—but it shows that crypto has a role to play, he said.

“It demonstrates that money can be raised directly from individuals around the world, for humanitarian aid, or to directly fund a war,” said Mr. Robinson.

Leaning on technology isn’t out of character for the Ukrainian government, which has been trying to boost its economy with the technology industry in recent years. The country launched an official government-based system of electronic money and created a Ministry of Digital Transformation. It was that ministry that asked Kuna to start the crypto fundraising effort, Mr. Chobanian said.

“Cash is useless because it’s physical,” Mr. Chobanian said. Carrying cash is also dangerous in a war zone, he said.

Most people, he said, are using credit cards or IBAN, the international bank account number system used by banks. Cryptocurrencies work well for large payments and international payments, Mr. Chobanian said.

Crypto transfers are especially fast compared with traditional methods. Transactions settle in about 10 minutes for bitcoin, for example, after which the money is transferred. What that means in practice is that the money being donated is available almost immediately.

Kuna converts crypto into other digital currencies or fiat currencies for bank accounts. Some of the supply companies for which Kuna is brokering the purchases, Mr. Chobanian said, are accepting payments directly in crypto. In some cases, they have walked the companies through the steps to do so.

“Because a lot of companies want to help us more than make money, they start accepting crypto for us,” Mr. Chobanian said.

The donation fund accepts a range of cryptocurrencies: bitcoin, ether, tether, litecoin, dogecoin and about 20 others. Gavin Wood, the founder of one blockchain-based platform called Polkadot, tweeted that he would donate $5 million if they set up a Polkadot address. Mr. Chobanian did a few hours later. Mr. Wood made the donation.

The Ukrainian government alone has raised $31.5 million in crypto donations and spent $17 million of it so far, according to an update Wednesday Mr. Chobanian shared on his Twitter account.

Ukrainian and U.S. officials have voiced concerns that Russians could use cryptocurrencies to evade sanctions. Over the weekend, Ukraine’s Vice Prime Minister Mykhailo Fedorov asked crypto exchanges to block Russian users, something none of the exchanges agreed to do. So far there hasn’t been evidence supporting a large-scale Russian effort to avoid sanctions using cryptocurrencies.

China’s economic recovery isn’t gaining the momentum money managers are awaiting.

Data from China Beige Book show that the economic green shoots glimpsed in August didn’t sprout further in September. Job growth and consumer spending faltered, while orders for exports came in at the lowest level since March, according to a monthly flash survey of more than 1,300 companies the independent research firm released Thursday evening.

Consumers’ initial revenge spending after Covid restrictions eased could be waning, the results indicate, with the biggest pullbacks in food and luxury items. While travel remains a bright spot ahead of the country’s Mid-Autumn Festival, hospitality firms and chain restaurants saw a sharp decline in sales, according to the survey.

And although policy makers have shown their willingness to stabilise the property market, the data showed another month of slower sales and lower prices in both the residential and commercial sectors.

Even more troubling are the continued problems at Evergrande Group, which has scuttled a plan to restructure itself, raising the risk of a liquidation that could further destabilise the property market and hit confidence about the economy. The embattled developer said it was notified that the company’s chairman Hui Ka Yan, who is under police watch, is suspected of committing criminal offences.

Nicole Kornitzer, who manages the $750 million Buffalo International Fund (ticker: BUIIX), worries about a “recession of expectations” as confidence continues to take a hit, discouraging people and businesses from spending. Kornitzer has only a fraction of the fund’s assets in China at the moment.

Before allocating more to China, Kornitzer said, she needs to see at least a couple quarters of improvement in spending, with consumption broadening beyond travel and dining out. Signs of stabilisation in the housing market would be encouraging as well, she said.

She isn’t alone in her concern about spending. Vivian Lin Thurston, manager for William Blair’s emerging markets and China strategies, said confidence among both consumers and small- and medium-enterprises is still suffering.

“Everyone is still out and about but they don’t buy as much or buy lower-priced goods so retail sales aren’t recovering as strongly and lower-income consumers are still under pressure because their employment and income aren’t back to pre-COVID levels,” said Thurston, who just returned from a visit to China.

“A lot of small- and medium- enterprises are struggling to stay afloat and are definitely taking a wait-and-see approach on whether they can expand. A lot went out of business during Covid and aren’t back yet. So far the stimulus measures have been anemic.”

Beijing needs to do more, especially to stabilise the property sector, Thurston said. The view on the ground is that more help could come in the fourth quarter—or once the Federal Reserve is done raising rates.

The fact that the Fed is raising rates while Beijing is cutting them is already putting pressure on the renminbi. If policy makers in China wait until the Fed is done, that would alleviate one source of pressure before their fiscal stimulus adds its own.

How Bitcoin and a Crypto Exchange Became Part of Ukraine’s War Effort

Kuna, Ukraine’s largest crypto exchange, has emerged as central hub for the country’s efforts to raise funds via cryptocurrencies.