In the last month, we have seen two major developments that bode well for cryptocurrency’s future.
On Feb. 26, the Ukrainian government began accepting crypto donations as it defends itself against Russia’s invasion. Then, on March 9, the White House issued an executive order directing federal agencies to coordinate their approach to the sector.
If the crypto industry builds off both events, it can help correct misguided thinking about digital assets and help lawmakers create intelligent, long-lasting regulation that protects investors without compromising the innovation that has fueled the industry’s growth. The opportunity is historic.
Openness to crypto’s benefits
The executive order, which many crypto advocates worried would create a restrictive environment for digital assets, welcomed the industry to engage with lawmakers to develop clear, straightforward policies that address crypto’s unique qualities. Rather than make definitive proposals, it directed the Treasury Department and other agencies to examine and report on various aspects of crypto. It created openings for crypto companies and industry organizations to gently educate agencies, which have struggled to understand how crypto works and why it improves on fiat monetary systems.
This is significant. The federal government sees its primary role as a protector of everything, including consumers, the financial system and national security. The executive order expressed a refreshing openness to the positive aspects of crypto.
A false narrative
Since Russia invaded Ukraine, we have witnessed two crypto narratives arise related to sanctions evasion and crypto donations. The first, which is getting significant attention in Washington and has yet to be proven, is that Russian oligarchs are using cryptocurrency to avoid severe economic sanctions by the U.S. and other countries who have opposed Russia’s attack.
Federal regulators and investigators have been adamant that sanctioned Russians are not using crypto to avoid sanctions at scale. One week after the executive order was signed the Digital Assets Sanctions Compliance Enhancement Act was introduced to allow the president to add non-U.S.-based crypto companies to sanctions lists if they support sanctions evasion.
Missing from these headlines is a discussion about the tools and resources available to monitor bad actors using blockchain technology.
What policymakers must understand is that a vast majority of centralized exchanges already have comprehensive compliance programs in place, and sanctioned individuals and companies are barred from using these crypto exchanges.
Further, the scale of the blow to the country’s financial services industry and Russia’s limited adoption of crypto make it nearly impossible for Russians to use crypto to replace billions of dollars already frozen or locked due to sanctions.
The liquidity needed to convert millions of dollars in crypto would require trades to take place over several days, if not weeks. Additionally, every transaction would be documented and tracked on a blockchain ledger, making it easier for international authorities to flag and find bad actors. In short, moving large amounts of crypto would be nearly impossible.
“The scale that the Russian state would need to successfully circumvent all U.S. and partners’ financial sanctions would almost certainly render cryptocurrency as an ineffective primary tool for the state,” according to Carol House, the director of cybersecurity for the National Security Council. The industry must make this clear to policymakers – particularly those crying foul.
An underreported narrative
The second narrative, which has received little attention from policymakers, is how to help Ukrainians use crypto. The crisis has highlighted the need for quick, efficient cross-border payments to deliver real time aid to those who need it most.
Within hours of the Russian invasion, numerous nonprofit organizations and funding efforts began providing humanitarian aid to Ukraine. It became increasingly clear that sending donations via traditional banking methods is difficult given the high cost of moving money across borders. There was also no time frame around how long it would take for money to reach people on the ground.
Cue crypto and its ability to facilitate cross-border payments in a fraction of the time and with almost no cost. The Ukrainian government quickly realized that crypto was the surest way to support its fundraising efforts, and started accepting direct crypto donations.
Within days, Ukraine had raised nearly $100 million in direct aid. Crypto is responsible for such fast, effective fundraising. Without this technology, timely humanitarian and military aid would not have been possible.
A powerful opportunity
This real-world situation, coupled with the executive order, is a powerful opportunity for industry to demonstrate to policymakers how crypto can be used for good. The revolutionary payment system, with a public and traceable ledger, has the potential to change the way we send, store and receive money, especially during times of crisis.
The crypto industry has already taken proactive steps to engage with policymakers and follow established financial services industry regulations. These critical actions have helped the industry gain trust in Washington. However, dialogue from the broader industry must increase.
While there are still powerful cryptocurrency skeptics in the federal government, the fact that the White House itself is receptive to crypto’s potential provides an opening for crafting reasonable, effective regulation. The crypto industry would be hugely remiss to miss this opportunity.
Now, more than ever, the industry needs to educate policymakers and show them that crypto is and can be a force for good.