The “crypto bros” self-serving response to Russia’s war on Ukraine is providing all the ammunition regulators need to bring the hammer down on their laser-eyed heads.
On Wednesday, TRON founder Justin Sun used his Twitter account to lambaste Ukraine’s Vice Prime Minister Mykhailo Federov. Sun took issue with his perception of how Ukraine was treating TRON users who’d responded to a public appeal for funds to support Ukraine’s fight against Russia. Those users were forced to contribute using the Tether stablecoin, since Ukraine wasn’t accepting TRON.
To thank those who’d donated, Federov announced a since-scrapped airdrop of a new token. But Sun took exception to the politician’s alleged failure to reward TRON users via this airdrop. In a series of since-deleted tweets, Sun whined that Ukraine’s airdrop “just ignores [TRON users] completely. It is just UNFAIR… excluding TRON is UNJUST!”
While Sun tried to front-run criticism by saying his personal contribution was “not a matter of expecting a return,” Twitter critics nonetheless savaged Sun for his petulance at Ukraine’s failure to match his ‘quid’ with a suitably generous ‘quo.’
Sun wasn’t the only crypto luminary who sought to turn Ukraine’s plight to their advantage. Ethereum co-founder Gavin Wood pledged US$5 million to Ukraine on the condition that Ukraine set up a Polkadot wallet to accept his DOT digital currency. Apparently, converting his DOT to a currency that Ukraine was already set up to accept was a blockchain bridge too far for Wood.
It’s hard to imagine the blowback that mainstream companies would face if they attempted to coerce Ukraine into promoting their brands in exchange for desperately needed financial help. (Imagine a certain soda company pledging $100m on the condition that Kyiv slapped ‘Pepsi Plaza’ signage on Independence Square.) Yet the potential for a negative response appears not to have entered the brains of these self-promoting crypto carpetbaggers.
Tanking the untanked
The ‘crypto’ community was already struggling to shed its public perception as a malignant narcissism incubator before Sun used ‘unjust’ to describe missing out on a free token giveaway—while thousands of Ukrainian civilians lie dead and thousands more cower in makeshift air-raid shelters.
The unprecedented coordination of so many Western nations imposing crippling financial sanctions against Russia has been hotly debated within the digital currency community, with many arguing that the sanctions will do more harm to the average Russian than to Vladimir Putin and his oligarchic inner circle.
Digital currency’s self-serving mantra has traditionally centered on the maxis’ supposed altruism—banking the unbanked!—and the notion that the average Russian babushka will survive these economic privations through her savvy use of custodial wallets and timely trades fits within this self-deluded paradigm. With their absurdly high transaction fees, most digital currencies are functionally useless for purchasing everyday items, and that’s assuming you can find a local grocer who’ll accept payment in digital currency.
As for waves of Russians taking their rubles out from under their mattresses and investing in digital currency to protect their savings from inflation, one need only look at the BTC token’s volatility over the past 12 months—twice topping US$60,000 before proceeding to shed half its value in a matter of weeks—to see that digital currency’s reputation as an inflation hedge is as misleading as a Russian state TV broadcast.
Warning shots fired
Sanctions are indeed a blunt instrument—although less indiscriminate than, say, dropping cluster bombs on residential neighborhoods—and their past use has failed to convince the despotic rulers of Iran, North Korea or Syria to pack it in and allow their populations the freedom to chart their own courses.
The suggestion in some parts that Putin will embrace digital currency as a means of evading these sanctions is a non-starter. Digital currency transactions are written on immutable ledgers and any transactions of the magnitude that would make any palpable difference to Russia’s current economic plight wouldn’t go unnoticed.
Regardless, the enthusiasm with which some “crypto bros” publicly pitched the conflict as a boon for BTC adoption should alarm the rest of the digital asset community. Rote pronouncements of ‘Bitcoin fixes this’ are inane at the best of times, but when the ‘this’ is an attempt to punish a megalomaniacal tyrant, your ‘fix’ starts to look like aiding and abetting crimes against humanity.
A number of U.S. regulators, having previously signalled their willingness—if not outright eagerness—to rein in digital currency’s excesses now have even more motivation to pounce. On Wednesday, Federal Reserve chairman Jerome Powell responded to a question on Russian efforts to evade sanctions by saying, “We need a legal framework that would take away as much as possible the possibility people could use unbacked cryptocurrencies as a way to evade the law or to finance terrorism or hide their ill-gotten gains.”
The same day, the U.S. Department of Justice announced the launch of Task Force KleptoCapture, which is “dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures” imposed by Western governments.
This interagency effort will not just target Russian officials and oligarchs but also “those who aid or conceal their unlawful conduct.” The Task Force’s mission statement includes “targeting efforts to use cryptocurrency to evade U.S. sanctions, launder proceeds of foreign corruption, or evade U.S. responses to Russian military aggression.”
The CEOs of prominent cryptocurrency exchanges have been quick to proclaim their adherence to detecting and preventing transactions by sanctioned individuals and entities. Given the prevailing mood in Washington, these statements need to be more than just the usual compliance theater, because the past week has made it plain that the rules of this game have changed dramatically.
These bags won’t pump themselves
The exchanges have so far balked at Ukraine’s request to completely halt activity by Russia-based customers, although the exchanges’ motivation for declining these requests were perhaps not entirely due to the libertarian principles they cited.
While most digital asset tokens plunged in value in the immediate aftermath of Russia’s invasion, many of these same tokens have since enjoyed a healthy bounce. “Crypto” advocates have touted this as incontrovertible evidence of the masses eventually recognizing the technology’s unique selling point, namely, that tokens like BTC provide safe havens in times of trouble.
In a word, bollocks. While Chainanalysis data shows that digital currency trading volumes have indeed spiked in both Ukraine and Russia, the total volume doesn’t approach levels that would warrant such a significant spike in token value. The gains are far more likely driven by—who else—speculators seeking a quick fiat profit from peddling their cryptopian fantasies and front running Ukrainian and Russians.
In other words, this is a garden variety price pump that will inevitably be followed by a dump of equal or greater proportion (the market’s tracking lower as we speak). After all, it’s the nature of all wildly speculative assets with little or no utility to soar and fall like Icarus. We suspect that at least some of the enthusiasm for digital currency donations to Ukraine’s cause may have been the ability to finally do something—anything—with these tokens beyond checking their theoretical value on CoinMarketCap.
While welcomed by Ukraine, the veneer of altruism provided by digital currency’s financial donations can’t mask the sector’s self-interest and self-destructive nature, which will undoubtedly prove its undoing before long. (Never forget the pro-Russia/anti-Ukraine stance exhibited by some notable BTC Maxis prior to the invasion and the Orwellian erasure of these sentiments once the bombs started falling.)
Ran Neuner, who operates the Crypto Banter streaming platform, tweeted shortly after Russia invaded Ukraine that the world was “watching Bitcoin being adopted for the exact reason it was created.” When a skeptic questioned whether the reason Neuner referenced was to allow blacklisted individuals to “carry on all their illegal activities,” Neuner replied: “Exactly. For financial freedom.”
There’s no shortage of this kind of ‘freedumb’ in crypto, be it Tether’s refusal to have its reserves probed by an actual independent auditor, Coinbase’s aversion to publicly declaring its financial interest in the tokens it lists, or Binance’s belief that it can’t conduct adequate Know Your Customer procedures because the customer is always right and Binance’s customers don’t want regulators knowing who they are or what they’re doing.
Western governments often appear slow and unwieldy, seemingly willing to tolerate all manner of incursions on their authority. But as the past week has demonstrated, one shouldn’t underestimate their ability and willingness to lower the boom when they decide someone or something has crossed a line of no return.
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