Crypto in the context of Russia and Ukraine

Crypto in the context of Russia and Ukraine

Q. What is your main insight into the role of cryptocurrency in the Russia-Ukraine war?

A. I think there has been a great awakening. I think February 26, 2022, will go down in history as the end of what we call the "Bretton Woods era" because we started the process of unraveling the Russian economy.

The United States and Russia have created a scenario in which many countries will now be forced to reconsider their holdings of U.S. dollars or U.S. Treasury securities. The reason for that is Russia has more than $600 billion in U.S. dollar reserves in various countries, half of which I think the Russian government or the Russian Central Bank cannot now hold. That is a stunning development.

At the same time, Russia has been effectively removed from SWIFT. The idea that you can exclude an entire country from that system is not new. When you cut a country off from what is effectively the backbone of global capitalism, you have created a problem for that country. This is where decentralization technology is likely to be the big winner.

Q. Are cryptocurrencies, especially bitcoin, becoming a backup investment?

A. I think gold will become the preferred reserve asset over the dollar in the short term. But how do you hold it? How do you move it on a global scale? Bitcoin is easy to move from place to place in real time, either on a large scale on the layer 1 Bitcoin blockchain or on a small scale with layer 2 technologies like Lightning. As more and more gold owners realize that bitcoin is a simpler form of gold, its position as a viable alternative will become feasible. As bitcoin's price rises due to continued strong network effects, its status as a gold alternative will solidify. As a result, I think bitcoin will become an important global reserve asset in the long run (10 to 15 years from now).

Q. Do you think we could move to a Bitcoin standard?

A. Again, I think the short-term winner is gold. I think the dollar, yuan, ruble, euro and even yen will compete to some degree in different types of transactions. And I think Ethereum will play a role in using private stablecoins - with the exception of China - as a means for transactions in these volatile currencies. The dollar will remain the reserve medium for most countries over the next five to 10 years.

I think the bond market in the U.S. is in big trouble. We will see private stablecoins being used for international settlement, with the five major currencies competing with each other. In the medium term, the price of Bitcoin will likely skyrocket, replacing much of the use of gold as a reserve currency for nation states and large corporations.

Q. Ukraine has received millions of dollars in Bitcoin donations. If it were Canada, it would have been seized. What does this tell us about the central financial authorities and their hypocrisy?

A. We have this bifurcated concept now in the West: we live in a democracy, but when it comes to the financialization of our world and how we control it, we have given totalitarian powers to the ministries of finance. In Canada, they can unilaterally sanction donations from the U.S. to a group of truckers they don't support - again, with no input from Congress and no due process. The U.S. Treasury has been unilaterally sanctioning foreign governments and individuals for decades.

At some point, people and governments will begin to question the viability of the U.S. dollar and Treasury bills as a reserve currency and whether remittances in U.S. dollars through SWIFT or its equivalent are the right way to conduct transactions when the financial system could be used against them.

I believe that [this continued usurpation of centralized financial power] is unsustainable. This also leads us to a discussion of fungibility and private coinage as an insurance policy against totalitarian governments or totalitarian decisions.

When it comes to unilaterally created sanctions, we should not be shocked if targets turn to decentralized systems designed to be untrustworthy without intermediaries to evade those sanctions. Bitcoin, of course, can play a role in evading sanctions when used in a permissionless peer-to-peer model. Bitcoin is just software. It doesn't care about sanctions or governments. It just runs. That's what it was designed to do.

Q. Will this enormous display of centralized financial power that has been deployed advance the cause of decentralized finance?

A. In the short term, decentralization manifests itself primarily in Bitcoin and Ethereum: Bitcoin as the future of money and Ethereum as the future of banking and decentralized computing.

Ethereum will skyrocket on the premise of becoming a decentralized financial stack. This will manifest itself in the form of NFTs, DeFi, Staking and other services. That's my three- to five-year premise. Bitcoin will continue to rise, in my opinion, although not as fast as Ethereum over that period.

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