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What Rising Geopolitical Tensions In Ukraine Could Mean For Cryptocurrencies

Published 02/21/2022, 11:22 AM
Updated 07/09/2023, 06:31 AM
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This article was written exclusively for Investing.com 

  • Ukraine: Current hub of geopolitical turmoil
  • Flight capital has a long history
  • New set of capital tools for those in flight
  • China eyeing events in Ukraine as it has designs on Taiwan
  • Cryptos: 3 critical benefits during treacherous times

Dwight Eisenhower, the 34th US president was the last commander in chief to also have been a military commander. As the leader of the free world in the 1950s he once said:

I hate war as only a soldier who has lived it can, only as one who has seen its brutality, its futility, its stupidity.”

Indeed, war is a devastating human invention. As the global pandemic scales down to endemic status, bellicose tensions in Europe have scaled up, reaching perhaps their highest level since the end of the Cold War and possibly the Cuban Missile Crisis in the early 1960s. The current standoff between the US and its NATO allies versus Russia over its threats to invade Ukraine could start a war in Europe.

War is a significant event, particularly when it involves nuclear powers on each side of the battle lines. Financial markets reflect the economic and political landscapes in which they operate. If fighting does break out, many innocent people will wind up in the heart of the battlefield. Ukrainian citizens could end up fleeing with just the clothes on their backs. In such a situation, cryptocurrencies could offer a form of easily transportable and highly liquid capital for those in flight.

Ukraine: Current hub of geopolitical turmoil

In 2020 and 2021, the global pandemic was in the spotlight across the world as the number of COVID-19 cases rose along with the fatalities. In early 2022, geopolitical turmoil has taken center stage.

The US and its NATO allies in Europe consider Ukraine part of free-Eastern Europe whereas Russia’s President Vladimir Putin believes Ukraine is an integral part of his nation. In his view, it's Western Russia. Putin has amassed around 150,000 Russian troops along Ukraine’s border and has demanded that NATO guarantee that Ukraine will never become a member. The Russian leader believes that NATO membership is a threat to his country.

NATO and the US have refused to make any such guarantee citing respect for Ukraine’s sovereignty. While negotiations and discussions continue, the Russian leader hasn't downgraded the level of his threats. Though the US and Europe have threatened severe sanctions, Russia and China have agreed to a framework that could make any sanctions toothless.

Moreover, Russia is a leading producer of crude oil, wheat, palladium, aluminum, fertilizer, and other raw materials. As tensions rise, supply chains could experience substantial shortages and prices could soar.

Flight capital has a long history

Global commodity shortages are just one aspect of war's hellish hazards. For those attempting to escape from the ravages of war zones in search of safe havens, capital with which to survive no matter where they end up is a critical consideration and often a challenge.

In the lead-up to World War II, gold and diamonds were the primary assets many people put in their pockets or sewed into their clothing to enable a fresh start in a new country. Flight capital is an economic term that refers to the transfer of assets from one country to another because of unfavorable economic or political events.

When fleeing a war zone, traditional bank transfers can be impossible to initiate. While gold, diamonds, and other high-worth assets have historically been traditional flight capital, technology has introduced a new asset class that allows those in flight from war conditions to hold unlimited amounts of capital in their pockets. 

New set of capital tools for those in flight

Cryptocurrencies in a computer wallet can fit in a flash drive in a pocket, and the computer wallet could carry unlimited assets in Bitcoin, Ethereum, or other cryptocurrencies. A secure password allows the owner to access the capital anywhere globally and convert it into local currency.

As flight capital, cryptocurrencies are a lot easier and more secure than gold, diamonds, or any other hard assets. As the geopolitical temperature rises, cryptocurrencies could attract lots of buying in areas in jeopardy. 

China eyeing events in Ukraine as it has designs on Taiwan

In 2021, the world watched as refugees fled Afghanistan the Taliban returned to power as US and European troops left the troubled country. In 2022, Ukraine is on the verge of a Russian takeover, leading many there to consider seeking refuge abroad.

China has backed Russia in its designs on Ukraine, and Russia appears to have returned the favor with the support of China in its quest to reunify with Taiwan. Taiwan’s population stands at over 23.5 million, and many there will flee if China increases military actions that could lead to war and push the East Asian country under China’s political umbrella.

Cryptocurrency demand in Taiwan, and other Asian countries, could rise dramatically if Chinese expansionary policies continue. China will be gauging the US and European reaction to the situation in Ukraine, measuring its own plans for Taiwanese reunification.

Meanwhile, North Korea and Iran remain rogue states with increasing nuclear capabilities that could also foment turmoil in neighboring countries, potentially causing numerous people to flee in upcoming years. Cryptocurrencies on a flash drive in a pocket would likely become the ultimate, easily transportable flight capital for modern-day refugees.

Cryptos: 3 critical benefits during treacherous times

Cryptocurrencies offer three benefits during turbulent times:

  • Digital currencies are a highly liquid global means of transaction that are traded via an assortment of exchanges.
  • A computer wallet exists in cyberspace, transcending borders and government interference.
  • Crypto security depends on a single password or key, proprietary to each account holder.

Ideologically, cryptocurrencies are a libertarian form of money that takes control of the money supply from central banks and governments and returns it to individuals. Cryptos are global, fungible, transportable, evolutionary, and revolutionary financial technology (fintech) products.

Sadly, the concept of war has not faded into history. As Civil War General William Tecumseh Sherman said, “war is hell," and more than a century later that hasn't changed.

However, cryptocurrencies could make the problem of flight capital simpler. Indeed, if global geopolitical conflagrations ratchet up, digital tokens could become the leading assets serving as flight capital. Ironically, rising prospects for war could be bullish for cryptocurrencies.

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