The two sides of crypto in the Ukraine war

Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. A year after the Russian invasion of Ukraine, we look at the role crypto played in the conflict

Crypto’s impact on geopolitical issues isn’t often an edifying read. The US, for example, fears that digital assets could offer sanctioned actors a new way to bypass the financial system.

But the war in Ukraine has shown that the use of crypto in international affairs is far more nuanced and complicated. The BlockchainData analysis firm Elliptic has shared data with the FT showing private crypto fundraising for pro-Ukrainian causes has outperformed Russian equivalents by 44 to 1 over the past year.

In total, more than $200 million worth of cryptos have found their way to what have been described as pro-Ukrainian causes. These funds, worth over $80 million, went directly to the Ukrainian government.

Just weeks after the invasion, a Ukrainian politician said crypto did it helped supply his armed forces with supplies like bulletproof vests, helmets and walkie-talkies. Other funds went to humanitarian causes and even to journalistic and intelligence purposes.

These funds not only dwarf the less than $5 million sent to pro-Russian entities, they also represent at least one-fifth of total non-government-mandated aid to Ukraine, for the first time in history is that crypto plays a significant role in a major conflict.

“Ukraine bet heavily on crypto by offering donation addresses literally hours after the invasion, and it paid off,” said an Elliptic analyst who spoke to me on condition of anonymity. “Twenty percent of crypto base money is no small feat,” they added.

If you’ve been subscribing to this newsletter for some time, you’ll recall that just a few weeks ago I questioned the usefulness of crypto as a force for good as a hard-to-spend crypto token in the days following the tragedy Earthquakes poured into Turkey and Syria in the region. But in Ukraine, crypto has shown that it has some social utility.

So, can crypto claim to be a force for legitimate good? Possible, but as crypto fans also say, the technology is neutral and versatile.

Of the nearly $5 million worth of crypto donations donated to pro-Russian entities, more than half of those funds were for military fundraising, and most came from exchanges and blending services — a special piece Crypto technology that has drawn the ire of Western governments in recent months

These groups often provide expense reports on the Telegram messaging platform. Elliptic estimates that MOO “Veche” – a military fundraising group active in the Donbas – raised around $1.8 million in Bitcoin which would make them the wealthiest pro-Russian fundraising group by crypto holdings.

Elliptic’s research also highlights a “particularly violent” use of the cryptocurrency dating back to Rusich, a paramilitary combat group known for neo-Nazi symbolism. The organization – also associated with the Wagner Group – has been involved in military campaigns in Syria and Ukraine.

In Telegram channels related to Rusich were Wallet-Addresses widely shared to solicit crypto donations. These wallets have been sanctioned by the US Office of Foreign Assets Control, but in addition the paramilitary group has attempted to blackmail the families of lost loved ones by promising their dead relatives’ coordinates in exchange for bitcoin.

“If you can’t identify the bodies of those killed, don’t just give them away. Take the coordinates of the exact gravesite. . . and offer relatives the details for $2,000 to $5,000. Funds can be transferred to your bitcoin wallet.”

Another caveat that may quash crypto evangelists is that while Ukrainian donations have far outpaced Russian fundraising, the pace of donations has slowed significantly.

Elliptic estimates that much of the more than $200 million donated to Ukraine was sent immediately after the Russian invasion. After March 2022, the rate of Ukrainian donations decreased. In contrast, Russian crypto fundraising shows no signs of slowing down.

“Therefore, many virtual asset providers cannot afford to be complacent about this, because while Ukrainian funds have fallen, Russia is much more stable in terms of funds coming in,” the Elliptic analyst added.

Before Christmas, a Ukrainian politician told me that Russian use of crypto would become a “big problem.” If Russian crypto fundraising doesn’t slow down in the coming months, he might be right.

How do you assess the role of crypto on a global level? As always, send me your thoughts at scott.chipolina@ft.com.

Weekly Highlights:

• The Federal Reserve has issued a joint statement with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency highlighting liquidity risks for banks from some funding sources in the crypto markets. It is the latest evidence that US authorities are leaning heavily on US banks to divest crypto, a lesson some banks like Silvergate have learned the hard way.

• Life got even worse for Sam Bankman-Fried this week as US prosecutors expanded their criminal case against the former FTX chief. Thursday’s updated indictment added charges including securities fraud and conspiracy to commit bank fraud, bringing an already lengthy indictment to 12. Also in the spotlight was SBF’s political donations, which were described as “made on behalf of others to disguise the true source of the money and circumvent federal election law.”

• Hong Kong has detailed its plan to attract more crypto businesses to the area by allowing retail investors to trade coins.

• The Securities and Exchange Commission has launched a new bid to oppose Binance US’ proposed $1 billion takeover of the assets of Voyager Digital, last summer’s collapsed crypto lender. The SEC said the bailout could violate securities laws. I teamed up with my editor, Philip Stafford, for the story, which you can read here.

Soundbite of the week: Crypto’s losing battle

Agustín Carstens, head of the Bank for International Settlements, said it is time for crypto to defy one of its deepest beliefs: that it is a viable medium of exchange that rivals fiat currencies.

“A few years ago, crypto assets and cryptocurrencies were somewhat offered as an alternative to fiat money. I think the battle has been won, technology doesn’t make trustworthy money.”

Mike Novogratz – a man who has a tattoo of the failed stablecoin Luna – thought he was trying to train the BIS boss. Read his answer Here.

Data Mining: The Dominance of tether grows

The stablecoin Tether has long established itself as the largest in the crypto market, but reviews of its reserves and growth of competing tokens have eroded its dominance in recent months.

New York’s recent action against BUSD – the third largest stablecoin and thus a main rival of Tether – has changed the market again.

Since state regulators ordered Paxos to halt issuance of new BUSD tokens, the Binance branded coin has lost billions of dollars in market share.

In contrast, Tether’s USDT now accounts for more than half of the market and has its highest share since October 2021, data provider CryptoCompare found.