Will the Conflict Between Russia and Ukraine Bring New Changes In the Cryptocurrency Market?
- Russia-Ukraine Conflict Boosts Crypto Market Growth
On February 24th, 2022, a huge explosion sounded near Kyiv, the capital of Ukraine, and then the Russian army officially landed in Odessa, Ukraine. At this point, the war between Russia and Ukraine was officially kicked off.
Due to the geographical location of Ukraine and the complex international relations of its domestic ruling parties, European and American countries took action after the outbreak of war between Russia and Ukraine by launching a package of economic and trade sanctions against Russia.
On February 27th, the European Union, the United Kingdom, the United States, and Canada jointly issued a statement announcing that some Russian banks were prohibited from using the Society for Worldwide Interbank Financial Telecommunication System, or SWIFT; and this decision will directly lead to the block out of the global trade and fund route of Russia, which is a heavy blow to the weak Russian economy.
Regarding the political impact of this war, many worldwide well-known media have made a relatively comprehensive analysis. If you are interested, you can pay attention to it. While this article will mainly analyze the impact of European and American economic sanctions against Russia on the financial industry, especially the crypto market.
As we all know, SWIFT has been called a “Financial Nuclear Bomb”. It has a powerful influence on the global financial market. While the sanctions against Russia not only mean that the financial diplomacy of Russia at the national level is limited but also cause problems for foreign nationals.
Once Russia is really banned of using SWIFT, most of the bank cards held by Russian expatriates will not be able to withdraw cash, transfer money, and even pay aboard. Thousands of expatriates will face a basic survival crisis.
So do Ukrainians. In the process of intensifying conflict between Russia and Ukraine, the domestic situation in Ukraine is turbulent as well. A large number of people have begun to migrate to Europe. The problem is that the transfer of gold or other physical assets is very difficult and inconvenient for them.
In this situation, war-related people have begun to show a strong preference for crypto assets. According to the public data on Coingecko, the trading volume of Kuna, the domestic crypto exchange in Ukraine, has more than tripled. And the trading premium of Bitcoin was up to 7%. The data indicates that local demand for Bitcoin in Ukraine has exceeded the available supply since the outbreak of the armed conflict between the two sides.
Bitcoin was trading at $41,554 on Ukrainian exchanges at 12:30 a.m. on Feb 28th, which was $2,821 above the global price of $38,733. This data also shows that the demand for BItcoin as “Digital Gold” is rising during wartime, which should be regarded as an optimistic signal for the crypto market.
2. The Next “Trillion Track” After the Metaverse
However, the overall clout in the crypto market has fallen sharply after the “Metaverse fever” at the end of last year. Many people start to look for the next clout.
But the fact is that the concept of the Metaverse has largely overdrawn the development of blockchain technology in the next few decades. Therefore, it seems that it is difficult to have a new “high-value track” inside of blockchain industry.
I believe that, in order to obtain further capital inflow and high public attention, the crypto market needs to integrate with traditional finance deeply to build a strong blockchian financial ecosystem.
So far, the trade finance sector in traditional finance faced the most serious problem. As the global trade finance gap has been increasing due to the pandemic of COVID-19 since 2017. The current gap in global trade finance is up to 1.7 trillion dollars according to the latest estimates of the World Economic Forum.
This is a finance gap with a trillion level, and this gap also exposes the current situation of difficulties for small and medium-sized enterprises to trade finance. As the conflict between Russia and Ukraine intensifies; Europe, the United States, and Russia have started a financial game, all these will lead to a further increase in the gap.
The difficulty of transferring physical assets and the soaring deficit in trade finance have forced small and medium-sized enterprises to start looking for new breakthroughs. Therefore, the combination of traditional finance with blockchain technology will become a preferred option to solve these problems for a long time in the future.
The strength of the traditional finance alone cannot bridge the huge gap in global trade finance, which was born because of the shortcomings of traditional finance. The traditional trade finance system is like a complex web, it has manual processes from decades ago, and has “Isolated Data Island” appeared recently, which is a closed system between trading partners. Leading to the block out in global trade finance in most countries.
According to the latest research from the International Chamber of Commerce Trade Finance Advisory Group, the Fung Group, and McKinsey company, only by streamlining processes and connecting opened global networks to the platforms, can the global trade finance market be fully integrated, even bringing huge changes to the global economy.
It is impossible to promote this reform without using blockchain technology. Using the decentralization, traceability, and transparency features of blockchain technology can create a more convenient, faster, and more free investment and financing ecology for the field of trade finance.
3. What Are Efficient Solutions to Solve the Trade Finance Gap?
In fact, blockchain industry has tried to solve the financing difficulties of traditional finance through DeFi lending as early as 2019. For example, Compound, a DeFi lending platform based on Ethereum, is one of the most representative platforms of all.
Compound started their construction from 2018 and was one of the earliest DeFi lending platforms of all. In terms of technology, Compound operates around the entire financing market and allows users to borrow against collateral as an open-source protocol. During the process of ecological operation, Compound allows users to deposit different types of cryptocurrencies for pledging and lending, including mainstream currencies such as $DAI, $ETH, and $USDC. By providing asset liquidity to the platform, holders can obtain corresponding benefits as well.
The difference between Compound and traditional financial lending platforms is that this type of decentralized lending protocol can avoid the monitoring and auditing problems of centralized institutions for users from the process, so that can simplify the process of financing and lending fundamentally. At present, the total market value of Compound ecological token $COMP has exceeded $733 million.
While Amplify Protocol is another Protocol that is active as the sub-sector of trade finance except for Compound. It was created in 2020 by the former product leader of XRP and co-operated by professionals in many fields like traditional supply chain finance, insurance finance, Internet technology companies, and compliance projects.
Although both are also decentralized financing and lending protocols, AMPT is significantly different from Compound. On the AMPT, users can use qualified traditional assets as collateral to obtain lending qualifications. This rule breaks down the barriers between traditional trade and blockchain finance, and also provides a solution to the gap of trillion-dollar global trade finance.
In the past two years, due to the impact of COVID-19, the global economy has been traumatized at different levels, and the existence of decentralized trade financing platforms such as the AMPT can remedy this trauma effectively.
On the other hand, the current war between Russia and Ukraine has also brought a huge level of economic damage to both countries. Even if the war will over in the future, the post-war economic recovery of the two countries is necessary, especially Ukraine. During the period of economic recovery, supporting the development of small and medium-sized businesses will become the main focus.
Therefore, I believe that linking the trade financing platform of traditional finance and the crypto world will become one of the development focuses of the blockchain industry in the future.
As for decentralized trade finance, another “Focus Track” of the blockchain industry, is fundamentally different from the Metaverse. The Metaverse is to create a brand-new world and constantly create new questions and needs based on this world. However, the decentralized trade financing platform is to provide solutions for the rigid demand problems of the current world in trade finance.
In general, the clout will eventually shift; the bubble may also dissipate, but the rigid demand industry will never be impacted by the transfer of the market clout.
