Russia’s Invasion Presents Double-Edged Concerns for Ethereum

Some analysts will diplomatically refer to Russia’s invasion of Ukraine as a tragedy. As I’ve had time to digest the latest news, I’ve now arrived at the conclusion that this is no tragedy — it’s pure lunacy. And it’s going to affect everything, including utilitarian cryptocurrencies like Ethereum (ETH-USD).

Concept coins for Ethereum (ETH) and Ethereum Classic (ETC).
Source: Shutterstock

To me, a tragedy is a horrific event that has fallen upon an unwitting person: a disastrous diagnosis, a surprise animal attack, being at the wrong place at the wrong time. But I don’t think that this word contextually describes the senselessness of the invasion. It also affords a sense of moral equivalency to both Russia and Ukraine, which is simply wrong.

If rational human beings can’t agree that individual countries can seek their own destiny without threat of violent coercion, then we are in a dark place. And if we insist on applying sensitivities on both sides of the issue, as if hundreds if not thousands of people just decided to spontaneously expire, then we have surrendered the very accountability that undergirds the rule of law.

In other words, such an ideology is the epitome of amorality. Whatever is right for you is right, and whatever is right for me is also right. Sure enough, it’s one of the vulnerabilities of Ethereum and cryptos in general.

In Ukraine, in Russia, in surrounding nations, people are looking for certainty. And that certainty comes through a — get this — centralized authority. With a heavy dose of the smelly stuff hitting the fan, I’m not really seeing the affected and thereby panicky masses run toward decentralized solutions like Ethereum.

Instead, many are looking to centralized solutions, as in the government agencies of the U.S. and the European Union, for clarity, support and ultimately intervention.

A Cynical Lifeline for Ethereum?

As I write this, Ethereum — along with many other cryptos — have bounced higher. I’m not entirely sure if the rally is sustainable. Having witnessed multiple bull and bear traps, I’m not exactly eager to pile heavily into any digital asset rumblings.

Nevertheless, an outside possibility exists that this rally is sustainable — for reasons that also relate to the violence. With the U.S. and western allies imposing both sanctions and removing certain Russian banks from SWIFT (the global payments system), many view cryptocurrencies as a possible medium to sidestep these economic penalties.

Indeed, a New York Times article before the world went to hell warned about this very possibility. Russia is a hotbed for digital activities, which include crypto ecosystems involving Ethereum and other assets. Further, the country has been experimenting with a digital ruble to provide alternative funding and payment transactions.

As you might imagine, Ethereum and others represent a paradigm shift for the fiat banking system. Because cryptos transact outside the system, very few avenues exist to track where money is going. So, in theory, cryptos could save Russia from sanctions.

But the problem, as the NYT pointed out, is that other countries (in an international setting) would have to be willing to accept digital rubles without first converting it to dollars. As you can see from the bank runs that individual Russians have sparked thanks to the runaway inflation of their currency, most folks apparently aren’t interested in decentralized solutions.

Plus, even if Russians decided to use digital rubles — or a “retail” crypto like Ethereum — merchants and other institutions would have to accept them. While integration is occurring all over the world, on balance, not too many places accept cryptos.

They want cold hard cash instead.

Difficult Days Ahead

What could help the sector move forward is the unity that this crisis has fostered. At a time when politics seems to have bitterly divided us, the fighting spirt of the Ukrainians — especially President Volodymyr Zelenskyy — has been nothing short of inspirational. Their courage under impossible odds may bring healing in more ways than one.

So yes, it’s possible that Ethereum could rise higher. After the many miracles I’ve witnessed, I don’t want to rule anything out.

However, I also believe difficult days are ahead. Therefore, I’m going to stay on the sidelines for now. With Russia changing the modern global order, it’s really become impossible to navigate the capital markets with certainty.

On the date of publication, Josh Enomoto held a long position in ETH. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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