Ukraine War Proved Crypto Can Hedge Against Currency Devaluation

Trade volumes for Russian ruble and Ukrainian hryvnia pairs spiked at critical points throughout the conflict — especially when fiat was threatened

article-image and kitti Suwanekkasit/ modified by Blockworks


In bull cycles past, bitcoin proponents have pushed crypto as an inflation hedge — specifically BTC.

It’s a rosy and simplified view of bitcoin’s role in our world. But it’s somewhat true if one zooms out far enough — the price of bitcoin has jumped about 170% over the past five years, while the cumulative rate of inflation is just 16.5% across the same period.

On a more granular level, bitcoin doesn’t always work as an inflation hedge. Bitcoin is down nearly 40% over the past year, while the annual rate of inflation hit 6.5% in December — using bitcoin as an inflation hedge would’ve only made things worse.

But where cryptocurrency really shines is in places where local currency is rapidly devaluing. Crypto usage exploded in Venezuela, for example, as hyperinflation wrecked its local currency.

More recently, dollar-pegged stablecoins tether (USDT) and binance USD (BUSD) served as a hedge against the devaluation of the Ukrainian hryvnia (UAH) and Russian ruble (RUB), as the long-running conflict spiraled into all-out war last February.

The Ukrainian hryvnia has lost 32% of its value against the US dollar since 2020. The Russian ruble, on the other hand, shed 10% over the same time frame, but fell as low as almost 40% as strict Western sanctions struck the local economy last March.

Blockworks analyzed trade volumes in UAH and RUB crypto pairs across exchanges including Binance and Huobi alongside European venues Whitebit and CEXIO over the past three years. 

The goal: Determine which real-world events triggered the most activity for crypto traders with UAH and RUB fiat balances, while mapping general trends of crypto usage to the devaluation of those fiat currencies.

It must be noted that only UAH and RUB pairs were studied, not all crypto markets available to traders based in Russia and Ukraine. 

This is intended to capture specific activity: swapping fiat directly for cryptoassets to hedge against potential devaluation. It’s likely this data also includes speculative investments not directly related to such endeavors.

Ukrainian hryvnia volumes spiked for stablecoins amid sudden devaluation

  • UAH pairs on those platforms altogether saw almost $7.3 billion in trade volumes since Jan. 29, 2020.
  • Nearly half of that volume occurred after Russia invaded Ukraine on Feb. 24, 2022.
  • Bitcoin made up more than 85% of trade volumes before stablecoin pairs were first listed in July 2020, now dollar-pegged tokens make up the overwhelming majority.
Click the BTC/USD swatch to directly compare UAH with trade volumes (hint: toggle the stablecoin outliers to see how the trend has shifted) | Chart by David Canellis

Crypto trade volumes for hryvnia pairs — particularly bitcoin — understandably picked up in October 2020, as did volumes across the rest of the world. BTC was worth $10,000 at the time and just starting its first run to $60,000.

Much of the UAH trade activity around that time can be attributed to the general crypto bullishness that gripped markets the following year. 

In fact, UAH-stablecoin pairs briefly made up more than 90% of such fiat markets in mid-October before swinging to under 9% the following March. 

The trend hints at waves of Ukrainian fiat holders swapping UAH for dollar-pegged stablecoins at the beginning of the bull run, presumably to trade for other cryptocurrencies due to the small number of UAH pairs available. 

Subsequent fiat volumes were instead directed at bitcoin and ether as BTC peaked in March, showing many bought (and sold) the top.

But stablecoin volumes rose significantly leading up to Sept. 2021, alongside wartime posturing, after months of reports indicating Russian troops were massing along the Ukrainian border.

Throughout the year, average UAH-stablecoin volumes had hovered at $16.4 million — that figure jumped to nearly $42 million through September until the end of December.

UAH was worth $0.037 at the time; it’s now worth 30% less.

After a three-month lull, stablecoin volumes gathered steam as Russia invaded Ukraine on Feb. 24, 2022. The National Bank of Ukraine quickly implemented strict foreign exchange controls to stop the hryvnia from spiraling further. 

Average weekly UAH-stablecoin volumes reached $100 million between Russia’s invasion and late July — more than doubling since the US and Ukraine formed a strategic alliance in response to Russia’s aggressive stance.

Bitcoin was once the most popular asset to purchase with UAH on these exchanges. Not anymore. | Chart by David Canellis

But some of the biggest spikes in UAH-stablecoin activity came just before the country’s central bank devalued its local currency by 25% against the dollar on Jul. 21, 2022. The move was made to help the local economy deal with a strengthening US dollar against the grim backdrop of war at home.

Nearly $566 million in UAH-stablecoin volume was recorded in July, equating to $135 million in average weekly volume, a 35% jump.

Any fiat holder who’d stayed in US dollar stablecoins would’ve found protection against the UAH’s sudden devaluation — although a giant spike in trade volumes just after indicates some were a little too late. Trade volumes across UAH pairs have since fallen significantly.

Russian ruble pairs saw major surge following temporary crash

  • RUB pairs across these platforms have seen $10.2 billion in trade volumes since Jan. 29, 2020.
  • Weekly trade volumes more than doubled as the ruble briefly collapsed 45% under strict Western sanctions at the start of the invasion.
  • US-dollar stablecoins today make up nearly half of all RUB pair activity.
Notice the major spikes as the ruble crashed in Feb. 2022 | Chart by David Canellis

Ruble-based trade has trended somewhat differently to the hryvnia, with stablecoins and bitcoin both maintaining steady volume dominance amid the 2021 bull run.

Still, relatively high volumes during that year can be similarly attributed to increased interest around cryptocurrencies during bull markets. 

A major spike in May 2021 directly coincided with bitcoin’s retracement from $58,000 to under $34,000, suggesting RUB traders both bought the dip and tried to take profits.

But volumes indicate many traders saw opportunities to escape the effects of Western sanctions on the ruble in the week of Russia’s invasion some 10 months later — and not just via dollar-pegged stablecoins.

In the three months preceding, RUB pairs saw on average $98.6 million in weekly volume. As the ruble rapidly descended 45% in late Feb. 2022, those markets saw more than double on average — mostly as it collapsed, but significant amounts were recorded as it bounced back to 2017 levels.

RUB-stablecoin volumes were sporadically high as 2022 rolled on, but eventually dwindled as the ruble regained momentum.

The lion’s share (99%) of RUB trade occurred on Binance, which boasts 15 pairs, nearly triple the number of Ukrainian hryvnia pairs. 

Cutting Russia-based users off from crypto trading platforms was a touchy subject for the ecosystem in the early days of the war, as parts of the global financial system moved to disconnect itself from the Russian economy along with major corporations.

Ruble traders have more choices but still gravitate toward stablecoins | Chart by David Canellis

Binance CEO Changpeng Zhao, while pledging to adhere to all international sanctions, at the time commented that outright banning local users would be unethical

Major platforms Coinbase and Kraken telegraphed similar stances, only intending to block users directly sanctioned by international authorities. Binance throttled certain services to Russia-based users in Apr. 2022, placing accounts with more than 10,000 euros ($10,860) into withdrawal-only mode. 

Binance has reported processing nearly $1.9 billion in ruble-to-crypto trades since then, 45% USDT-based per TradingView data, although how much of that volume is directly tied to Russian users is unclear.

A question remains: While it’s obvious that cryptocurrencies offered a way to preserve value amidst the onset of war, could bad actors have benefitted from the availability of these fiat pairs, tangentially skirting the impact of global sanctions?

USDT was more valuable than fiat cash by 30% as war broke out

Nick Smart, director of blockchain intelligence at analytics firm Crystal Blockchain, told Blockworks that filtering bad actors “has to be an integrated, risk-based approach.” But Smart warned that there’s no way for crypto exchanges to eliminate risk entirely unless they don’t accept any clients.

In October, the European Union moved to restrict Russia-based users’ access to crypto markets in their eighth package of sanctions against Russia. 

As part of that package, the EU outright banned the provision of services related to cryptocurrencies, particularly for citizens and companies of the Russian Federation.

“So, if the exchange continues to serve citizens and companies of the Russian Federation, this will be a direct violation of the sanctions,” Lex Fisun, co-founder at Global Ledger Protocol, told Blockworks.

The sanctions aren’t aimed at the ruble itself, Fisun explained, but only at citizens and Russian companies. Russians can still circumvent those sanctions through crypto exchanges under certain conditions, especially those who aren’t specifically registered with the EU.

“Cryptocurrency-related sanctions will not apply to Russians who have citizenship, residence permit or permanent residence of the EU countries, as well as Switzerland,” Fisun said.

On a long enough time horizon, bitcoin was a great hedge against currency devaluation | Chart by David Canellis

Still, Fisun noted that anticipation of war, alongside panic and anxiety, definitely drove some to crypto and stablecoins. Also, many people in Ukraine and Russia use over-the-counter exchanges or platforms based on Telegram — like Bitzlato — so the true volumes will be much bigger than published by the exchanges analyzed for this report, he said.

To that end, Michael Chobanian, long-serving Ukrainian crypto entrepreneur and founder of the nation’s first exchange, Kuna, told Blockworks that most of the trade surrounding the breakout of total war was done in cash — not crypto or even stablecoins. “This is how Ukraine mostly operates,” he said. 

“The obvious non-scientific answer is: ‘Yes, a lot of people escaped to USDT.’ In the first days of [the] war — even weeks — USDT was more valuable than physical US dollars by a factor of 30%. Cash was risk.”

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