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A pivotal geopolitical moment may also have been a pivotal one for the cryptocurrency ecosystem. Under pressure from governments, cryptocurrency platforms stood firm as independent, decentralized, and safe from central authority interference.

The period we are living through now is going to be remembered for a long time. And there is a good chance it will be seen as a significant geopolitical inflection point. Last week we wrote how Russia’s invasion of Ukraine will spur: the country’s financial isolation (unless the regime drastically changes); a major acceleration of measures to improve energy security, via investments in both clean energy and domestic oil and gas production; and a sharpened focused on cybersecurity. This week another secular shift is in the making—the testing and validation of Bitcoin as a haven.
Here is how. On the back of Russian President Vladimir Putin’s actions, the ruble lost 27% of its value from last Thursday to this Tuesday1, Standard & Poor’s cut Russia’s credit rating to junk2, the country’s default probability rose to 56%3, and there were queues to get money out of Russia’s banks. Unfortunately, reports suggest that some forex ATMs exhausted their supply of foreign currency.4 Mr. Putin issued a presidential decree banning residents of Russia from transferring foreign currency to accounts opened with banks located outside the country’s territory effective March 1.5
Amid this turmoil, Bitcoin rose nearly 15% from Monday morning to Tuesday afternoon.6

Reliable when central authorities are not

More than 17 million Russians, or about 12% of the population, are reportedly cryptocurrency owners.7 Collectively they own more than 2 trillion rubles ($22.9 billion) worth of cryptocurrency, according to a recent government paper.8

Russians pile into Bitcoin as a safe store of wealth than Ruble

Trading volumes spiked after the initial invasion, with daily trading volume for Ruble-denominated Bitcoin jumping to RUB1.3 billion ($11.5 million).9 This 121% week-on-week rise in volume10 makes clear the value of a decentralized payment system when you cannot rely on a central government, central bank, or financial institution to preserve the value of, and maintain access to and control of, your financial assets.

The prime use case for cryptocurrencies is the ability to transfer value quickly and reliably even when governments and/or traditional payment channels are not working effectively. Of course, since Bitcoin cannot be widely used to buy groceries or pay for shelter, there is still a need to convert to it fiat currency and/or use fiat to buy crypto in the first place.

Is there a risk that exchanges limit this important crypto on- and off-ramp? Unlikely. Amid the recent tensions, crypto exchanges such as Binance, Kraken, and Coinbase have all stated that while they remain vigilant about geopolitical developments, they are standing firm on the central premise of cryptocurrencies, that they are decentralized and safe from central authority interference insofar as they are used for legitimate purposes. They have refused requests to unilaterally ban individual access.11

Distrust of central authorities’ financial management is low in many other emerging market economies outside Russia. For example, only 33% of Venezuelans trust their national government, which may be reflected in relatively high crypto ownership.12 Citizens in developed market economies have their own concerns. For example, in the United States, they may fear that the Federal Reserve is printing too much money or is behind the curve on inflation, which could erode the value of the U.S. dollar.

Distrust of central authorities may fuel greater crypto adoption

The benefits of a distributed source of truth

In the lead up to Russia’s invasion last week, cyberattacks temporarily knocked offline key Ukrainian government websites, with officials blaming Russia for the hack.13 Cyber warfare is being waged and cyberattacks will more broadly become a more pervasive threat in the future, potentially targeting financial services, energy, and telecoms infrastructure.

In this context, it is important to have distributed sources of truth that cannot be erased. With leading financial institutions spending billions of dollars on cybersecurity, there must be many layers of protection. But the reality remains that, with a centralized database, most financial institutions are vulnerable to a systemic single point of failure (SPOF) problem. This means that in theory a targeted attack could make customers’ balance and transaction history temporarily unavailable. However, in practice it is unlikely that the data would be lost or corrupted permanently. The vast majority of financial institutions maintain multiple backups and ways to recover books and records.

Nevertheless, the blockchain technology underpinning bitcoin is less susceptible to a SPOF attack. Blockchains are not centralized, not localized to a single country, and not dependent on the skill of a single organization to build cyber defenses. Put simply, the decentralized, distributed nature of blockchain technology means that underlying transactions are recorded and constantly updated and reviewed by the entire network, not a sole actor. A transaction is validated and accepted onto the ledger only when a majority of the blockchains nodes, which means every single entity or computer that processes and verifies transactions, reach a consensus.

This consensus mechanism means that attacks on the underlying blockchain technology itself are much less likely to succeed than for centralized banking systems. If a hacker wanted to alter the ledger they would need to take control of a majority (51%) of the network’s mining power. However, as the blockchain evolves, it becomes increasingly less susceptible to a 51% attack due to the rising underlying cost of carrying out such an attack. In essence, as the blockchain network grows, so does the number of participating nodes, which in turn increases the necessary hash power (the computing power required to solve the algorithms involved in verifying transactions). At present, it would cost a hacker roughly $5.5 billion to obtain the hardware needed to control enough hash power.14 If you then add the sizeable electricity cost, it would be incredibly expensive for a hacker to take control of the blockchain.

This all means the risk of loss for blockchain balances and transaction history are extremely low. Unfortunately, the threat of a crypto wallet provider or wallet credentials being compromised is relatively high. A cryptocurrency could be untraceably stolen without transaction monitoring or recourse. Banks’ information security programs, transaction monitoring, and fraud collaboration can prevent theft and improve likelihood of recovery. Over time the crypto ecosystem will need to implement more safeguards along these lines to improve security. Nevertheless, crypto has real value as a tool by which people can isolate themselves from the local economy and store their wealth in the global economy.

Not a panacea, not without risk, but bright prospects15

Cryptocurrencies have other limits. As we note above, while they can be transferred they cannot be as readily spent. Also, there is still a SPOF risk if the exchanges (allowing conversion from crypto to fiat and back) block transactions. Lastly, the system hinges on a network of computers that must be connected and powered on.

Cryptocurrencies today are not perfect, with many challenges to address. For starters, the core challenge is to allow for much smaller transactions. The “layer 2” payment protocol for Bitcoin, named Bitcoin Lightning Network, is still in its infancy, but could make bitcoin cheaper and more suitable for day-to-day transactions. By allowing transactions to occur off-chain—between parties not on the blockchain network—it can facilitate instant payments and micropayments. With Lightning Network, you can send amounts as low as 0.00000001 bitcoins (worth less than $0.01).16 Still, the Lightning Network struggles to successfully ensure payments go through, with a test finding only a 51% success rate for a $5.52 transaction.17

Moreover, exchanges should implement “know your customer” processes to prevent malicious actors from taking advantage of the network. Renewable backup power generation and battery storage are needed to ensure the network remains active. In addition, AI-equipped cybersecurity solutions should be implemented to prevent attacks on telecoms infrastructure and ensure continuous connectivity.

Resolutions to all these issues are currently under discussion and, in our view, will be addressed because a clear consensus is emerging, especially amid the current conflict. Cryptocurrencies have an important and unique role to play, which is giving an individual the ability to have full autonomy over the transfer of their assets in a world where central authorities may not be reliable. This is a huge advantage, and despite likely incremental regulation of the crypto ecosystem, we think it is very unlikely that democratic governments, at least, will attack this fundamental tenet of cryptocurrencies.

This underpins our relatively constructive view of cryptocurrencies. We continue to advocate for a small strategic allocation to the asset class.

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1. Bloomberg, as of February 28, 2022.
2. S&P Global Ratings, as of February 25, 2022.
3. Bloomberg, as of February 28, 2022.
4. Bloomberg, “Russians Rush for Dollars as Sanctions Threaten Ruble Collapse”, as of February 27, 2022.
5. President of Russia, “Decree on the application of special economic measures in connection with the unfriendly actions of the United States and foreign states and international organizations that have joined them,” as of February 28, 2022.
6. Bloomberg, as of February 28, 2022.
7. TripleA, as of February 28, 2022.
8. Russian Government Paper, “Concept for Legislative Regulation of Mechanisms for Organizing the Circulation of Digital Currencies”, February 8, 2022.
9. Kaiko Analytics, as of February 28, 2022.
10. CoinShares, as February 28, 2022.
11., as of March 1, 2022.
12. Pew Research Center Survey
13. CNN, “Key Ukrainian government websites hit by series of cyberattacks”, as of February 24, 2022.
14. Braiins Bitcoin Mining Insights, as of January 11, 2021.
15. This material is not a complete list of the risks, considerations and other important disclosures involved in investing in cryptocurrency, which should be carefully evaluated prior to making an investment in cryptocurrency.
16. MIT Digital Currency Initiative, as of February 28, 2022.
17. Diar, Volume 2 Issue 25, as of June 25, 2020.


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Anastasia Amoroso

Anastasia Amoroso

Anastasia Amoroso is a Managing Director and the Chief Investment Strategist at iCapital. In this role, she is responsible for providing insight on private and public market investing opportunities for advisors and their high-net-worth clients. Previously, Anastasia was an Executive Director and the Head of Cross-Asset Thematic Strategy for J.P. Morgan Private Bank, where she identified and invested in emerging technologies and disruptive trends such as artificial intelligence, decarbonization, and gene therapy. She also developed global tactical ideas and implemented institutional-level implementation across asset classes for clients. Anastasia regularly appears on CNBC and Bloomberg TV and is often quoted in the financial press. See Full Bio.