Bitcoin Demand Booms in Ukraine And Russia

The Russian invasion of Ukraine has driven demand for cryptocurrencies in both countries, helping boost the price of bitcoin.

Bitcoin has been trading at a premium against the Ukrainian hryvnia on a number of exchanges, both globally and locally, a sign of high demand. On Binance, the largest exchange in the world, bitcoin was trading for the equivalent of $47,300 in hryvnia terms. On Kuna, the largest exchange in Ukraine, it was at US$46,955, and had traded as high as US$51,240.

In U.S. markets, bitcoin was recently trading at US$43,895, up about 15% since Monday morning, according to data from CoinDesk.

On Binance, there has been a surge in trading volume of bitcoin in exchange for rubles since just before Russia’s invasion began. Between Feb. 20 and 28, about 1,792 bitcoins exchanged hands in the ruble/bitcoin trading pair, compared with only 522 in the nine days before that, according to data on Binance.

Western sanctions have effectively cut Russia off from the global financial network, and Ukraine has imposed strict capital controls.

Crypto is popular in Ukraine and Russia. Ukraine ranked fourth on a global adoption index created by analytics firm Chainalysis. A Russian government report estimates that there were more than 12 million cryptocurrency wallets held by Russian citizens with about 2 trillion rubles, equivalent to about $20 billion.

“The situation in Ukraine has brought to light the value of bitcoin as an alternative monetary network,” said Timo Lehes, the co-founder of trading platform Swarm Markets.

A demand-driven rally specific to bitcoin is a break from its recent pattern, which has been to trade in line with risk assets like tech stocks.

Bitcoin’s rally this week wiped away losses for February. Most other cryptocurrencies were higher as well. Ether was up 8.1%. XRP was up 4.9%. Avalanche was up 9.7% and Cardano was up 7%.

On Tuesday, the tech heavy Nasdaq Composite Index fell 1.2%.

Because bitcoin trades 24-hours a day, in some cases it has been leading risk assets, not just following.

Last Wednesday, when Russian President Vladimir Putin announced his invasion of Ukraine, U.S. equities markets were closed. Bitcoin fell about 6% overnight, then rallied 13%. On Thursday, U.S. stocks closed slightly higher after a day of wild trading.

Bitcoin dropped almost 9% from the afternoon of Friday, Feb. 18, through the evening of Monday, Feb. 21, amid news of the worsening crisis in Ukraine. U.S. stock markets, closed on Monday for a holiday, didn’t get a chance to react to the news until Tuesday. When they did, the major indexes all lost more than 1%.

Attention has also fallen on cryptocurrencies for their potential to be an outlet for Russians trying to get around sanctions. While cryptocurrencies themselves haven’t been part of the sanctions, the White House has been considering adding them.

On Twitter on Sunday morning, Mykhailo Fedorov, Ukraine’s vice prime minister requested cryptocurrency exchanges block Russian accounts. “It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.”

Ukraine’s Mr. Fedorov didn’t make clear if the request was personal or one on behalf of the government. An attempt to reach him wasn’t successful.

Crypto exchanges largely demurred from enacting any voluntary restrictions in Russia.

Binance said it would not be doing a blanket ban but that it was taking action against those sanctioned by Western countries. Exchanges Coinbase, Kraken and KuCoin also said they wouldn’t be freezing Russian accounts without sanctions or legal requirements to do so.

“We try our best to protect human rights and asset security,” said KuCoin’s Chief Executive Johnny Lyu. “Actions that increase the tension to impact the rights of innocent people should not be encouraged.”

Crypto exchanges regularly comply with court orders and legal requests for data on its users, the same as regulated banks. There was no hint that the Ukrainian government, either alone or in concert, was going to take legal steps to require blocking Russian users.

On the technical side, exchanges have improved their infrastructure over the past several years and would be able to implement these sanctions if required, said Jack McDonald, the chief executive of PolySign, which makes crypto-assets storage software for exchanges and other custodians.

The exchanges have the ability to monitor accounts and transactions, and even know where the deposits are coming from. Funds from known hacks, for example, can and are blacklisted.

“It’s going to prove to be hard for Russia to evade sanctions using bitcoin,” Mr. McDonald said.

Even so, blocked users would still be able to find unregulated exchanges or even more opaque marketplaces for buying and selling their cryptocurrencies.

Part of Western sanctions included cutting Russia off from the Swift network, a bank-owned consortium that handles millions of daily payment instructions.

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

Investors are buying now, he said, in anticipation of an investment wave predicated on building those products.

As the war against Hamas dragged into 2024, there were worries here that investment would dry up in Israel’s globally important technology sector, as much of the world became angry against the casualties in Gaza and recoiled at the unstable security situation.

In fact, a new survey found investment into Israeli technology startups grew 28% last year to $10.6 billion. The influx buoyed Israel’s economy and helped it maintain a war footing on several battlefronts.

The increase marks a turnaround for Israeli startups, which had experienced a decline in investments in 2023 to $8.3 billion, a drop blamed in part on an effort to overhaul the country’s judicial system and the initial shock of the Hamas-led Oct. 7, 2023 attack.

Tech investment in Israel remains depressed from years past. It is still just a third of the almost $30 billion in private investments raised in 2021, a peak after which Israel followed the U.S. into a funding market downturn.

Any increase in Israeli technology investment defied expectations though. The sector is responsible for 20% of Israel’s gross domestic product and about 10% of employment. It contributed directly to 2.2% of GDP growth in the first three quarters of the year, according to Startup Nation Central—without which Israel would have been on a negative growth trend, it said.

“If you asked me a year before if I expected those numbers, I wouldn’t have,” said Avi Hasson, head of Startup Nation Central, the Tel Aviv-based nonprofit that tracks tech investments and released the investment survey.

Israel’s tech sector is among the world’s largest technology hubs, especially for startups. It has remained one of the most stable parts of the Israeli economy during the 15-month long war, which has taxed the economy and slashed expectations for growth to a mere 0.5% in 2024.

Industry investors and analysts say the war stifled what could have been even stronger growth. The survey didn’t break out how much of 2024’s investment came from foreign sources and local funders.

“We have an extremely innovative and dynamic high tech sector which is still holding on,” said Karnit Flug, a former governor of the Bank of Israel and now a senior fellow at the Jerusalem-based Israel Democracy Institute, a think tank. “It has recovered somewhat since the start of the war, but not as much as one would hope.”

At the war’s outset, tens of thousands of Israel’s nearly 400,000 tech employees were called into reserve service and companies scrambled to realign operations as rockets from Gaza and Lebanon pounded the country. Even as operations normalized, foreign airlines overwhelmingly cut service to Israel, spooking investors and making it harder for Israelis to reach their customers abroad.

An explosion in negative global sentiment toward Israel introduced a new form of risk in doing business with Israeli companies. Global ratings firms lowered Israel’s credit rating over uncertainty caused by the war.

Israel’s government flooded money into the economy to stabilize it shortly after war broke out in October 2023. That expansionary fiscal policy, economists say, stemmed what was an initial economic contraction in the war’s first quarter and helped Israel regain its footing, but is now resulting in expected tax increases to foot the bill.

The 2024 boost was led by investments into Israeli cybersecurity companies, which captured about 40% of all private capital raised, despite representing only 7% of Israeli tech companies. Many of Israel’s tech workers have served in advanced military-technology units, where they can gain experience building products. Israeli tech products are sometimes tested on the battlefield. These factors have led to its cybersecurity companies being dominant in the global market, industry experts said.

The number of Israeli defense-tech companies active throughout 2024 doubled, although they contributed to a much smaller percentage of the overall growth in investments. This included some startups which pivoted to the area amid a surge in global demand spurred by the war in Ukraine and at home in Israel. Funding raised by Israeli defense-tech companies grew to $165 million in 2024, from $19 million the previous year.

“The fact that things are literally battlefield proven, and both the understanding of the customer as well as the ability to put it into use and to accelerate the progress of those technologies, is something that is unique to Israel,” said Hasson.

Bitcoin Demand Booms in Ukraine And Russia

The cryptocurrency has been trading at a premium against the Ukrainian hryvnia.

The 28% increase buoyed the country as it battled on several fronts but investment remains down from 2021