The War in Ukraine: Cryptocurrencies as Safe Havens?
How Eastern Europe’s political instability has triggered a stablecoin rush.
USDT — Tether
Launched in 2014, Tether is a blockchain-based platform designed to facilitate the use of fiat currencies digitally. Tether is working to modernise the conventional financial system by transforming the way money is used. You may remember from high school or university that currencies should fulfill four conditions: they should be a medium of exchange (to be able to pay for a good or service), a unit of account (to count), a store of value (to be stored) as well as a standard of deferred payment.
Thus, each Tether token (USD₮) is pegged at one-to-one with a matching fiat currency (U.S. dollars). Tether comes in limited quantities, ensuring its function as a store of value and making it a “stablecoin”. Indeed, the exchange rate between the USDT and the American dollar is expected to remain stable. Tether is therefore backed by the US dollar and its corresponding fiat value was $1.
However, it is now trading above that parity on the Ukrainian exchange, which can be largely explained by the geopolitical situation in that part of the world.
Ukranian context
The price of the USDT on Kuna, the popular Ukrainian cryptocurrency exchange, has jumped nearly 5% since the start of the Russian-Ukrainian conflict, reaching 30 Ukrainian hryvnias on March 6th, which is equivalent to $1.10 per USDT. Indeed, as tensions between Russia and Ukraine harden, some citizens are seeking a haven for their assets. With most traditional cryptocurrencies, such as Bitcoin or Ether, being highly volatile, Ukrainians prefer to put their money into more stable currencies, Tether in particular.
However, there is a limited supply of USDT in Ukraine. It is now the largest stablecoin by market capitalisation at about $80 billion. In an interview with CoinDesk TV on the 23rd of February, Michael Chobanian, the founder of Kuna, admitted that it is becoming a serious problem: “The majority of people have nothing else to choose from but crypto”, he said, “we are talking about millions of dollars of cash that want to go into crypto … but we can not find people who are willing to do the opposite, sell it.”
At the same time, the National Bank of Ukraine implemented liquidity restrictions, including withdrawal limits, and has outright banned cross-border purchases and withdrawals of foreign currencies, making USDT even more attractive. Ukraine has also been donated large amounts of Bitcoin and Ethereum after they have been invaded by the Russian forces. Ethereum co-founder Vitalik Buterin condemned Russia’s recent attacks on Ukraine.
The situation in Russia
To offset the ruble’s devaluation, the Russian central bank decided to double its key interest rates on February 20th, from 9.5% to 20%. As a result, the Tether (USDT) spiked more than 30% in five days against the Russian rouble. Data from Cointelegraph Markets Pro and cryptocurrency exchange Binance confirm that the rouble has lost value, as the USDT/RUB exchange rate has crossed — for the first time in history — the 105 ruble mark, from around 80 rubles previously.
This reinforces the role of cryptocurrencies in the global financial ecosystem due to their decentralised nature. Have stablecoins become the new “gold” during the global crisis?
Still few people invest in these assets because, like Tether, they are limited, and remain little understood by the public. It remains to be seen whether the current situation of political instability and the associated crisis of confidence in institutions will contribute to the popularisation of cryptocurrencies, and stablecoins, as an alternative to traditional stores of value.
By Elise J.M. & Nam Bui
