1. Crypto crashed during inflation and in anticipation of rising interest rate. People lost confidence that crypto could be an inflation hedge.
2. But crypto proved to have a crucial use for Ukrainians to receive financial aid quickly and to move their wealth from their country to a new place.
3. Ukraine has declared martial law and one of the measures was for banks to halt internet bank transfers. This is because the central bank is fighting to defend its currency and to prevent bank runs and capital flight.
4. Ukrainians had to rely on cryptocurrencies while the traditional banking system stalled. USDT, a stablecoin, was in such a high demand that it broke the peg of the USD. It went as high as $1.10 against US$1.
5. $15m worth of cryptocurrency has also been donated to Ukrainians groups since the Russian attack. Ukranians can still get access to funds via crypto and to purchase whatever they need to survive. Fiat donations wouldn’t be as fast or as easily accessible by the man on the street.
6. I published a book in 2015, The Singapore Permanent Portfolio, in which I talked about portable wealth. Stocks, bonds and real estate are good investments only during normal times, but not during war. They cannot be moved easily and not even cash.
7. Hence, gold was suggested as an asset class because it is highly portable. It serves as an inflation hedge as well as an insurance of the worst case scenario. 1 kg of gold would have worth US$61,000. You can carry several kg in a bag. But of course it would be too conspicuous if you carry too much.
8. Crypto in this case become the ultimate portable wealth. You just need your private key and you can access your wealth anywhere in the world. No one knows how much money you have and hence you wouldn’t attract unwanted attention.
9. In the book, The Sovereign Individual, Davidson and Rees-Mogg talked about the key service of a government is to provide protection of assets. Once people know that this service can no longer be rendered with a high degree of confidence, a good number of them will flee.
10. With crypto, the capital flight will be much swifter and in huge amount.