Why Ukraine Should Be a Wake-up Call for American Financial Regulators | Opinion

In politics, as in life, timing is everything. Which is why the timing of the White House's digital asset executive order is so critical. The new directive represents the highest-profile U.S. government signal to date about the importance of digital assets. What shouldn't be lost on anyone: President Joe Biden signing it at a moment of perilous conflict in Ukraine—a conflict that has proven to be a powerful use case for cryptocurrencies and digital assets.

Last month, with the region's financial arteries arrested, Ukrainians were lining up at ATMs, resulting in the country's national bank instituting a withdrawal limit of 100,000 Ukrainian hryvnia per day (roughly $3,400). When this news spread around the world, millions of dollars came pouring into the country—in the form of cryptocurrency.

One Ukrainian whose bank account had been frozen was grateful that he could simply get the funds needed to move across the border to safety. Charities in the Ukraine were suddenly receiving crypto contributions from around the globe. A crypto validator explained why cryptocurrency has been so crucial to this fundraising: "Crypto is inherently worldwide. To donate using traditional currency often requires intermediaries, [but] cryptocurrency solves this by simplifying the
process." Others pointed out that such transactions would also successfully evade Russian surveillance and attempts to isolate Ukraine.

The Ukrainian government supported this effort, too. Vice-Prime Minister Mykhailo Fedorov issued a tweet with crypto wallet addresses. Civil society got in the mix too: Journalists on the ground have been using cryptocurrency to underwrite their vital coverage.

It's tempting to see this moment as just a temporary upwelling of sentiment and support for Ukrainians—random, unforeseen, a flash-in-the-pan. It isn't. For years, Ukraine has been building a hub for cryptocurrency and Web3 development. As of 2021, it ranked fourth on a global crypto adoption index—four spots ahead of the United States.

Ukraine has courted engineers and investment, and crucially, support for cryptocurrencies extends to the highest reaches of the government. In February 2022, the Ukrainian parliament passed laws supporting virtual assets. Per its vice-prime minister's announcement on Twitter: "Today we made one more step forward: Parliament adopted law on virtual assets!"

Bitcoin cryptocurrency token
Pedestrians walk past an advertisement displaying a Bitcoin cryptocurrency token. Anthony Kwan/Getty Images

The White House's executive order calls for further study—as opposed to stringent regulations. That's important, but the U.S. government ought to see what's happening in Ukraine as a chance to fully embrace crypto's potential. For too long, too many U.S. regulators have been skittish about crypto, or worse, downright hostile.

While the Ukrainian parliament encourages crypto's flourishing, New York state—home to the world's financial capital—has BitLicense regulations so onerous that they've largely stamped out cryptocurrency startup development. Even as Ukrainian citizens gratefully accept digital contributions through a system of decentralized finance, U.S. policymakers continue to critique these tools in scathing terms. One prominent U.S. senator recently called decentralized finance "the most dangerous part of the crypto world."

The United States has allowed fear to overtake progress. Crypto developments in Ukraine should lead the U.S. to reverse course—not just out of solidarity with those fighting Russian aggression, but because cryptocurrency is proving a powerful lever in this fight—and will continue to be in future conflicts.

The sanctions against Russia—including the removal of its central bank and several of its biggest financial firms from SWIFT—will likely force it to cozy up to China. Having seen the consequences of dependence on the West, both Russia and China will try to reduce their reliance on the dollar and on Western financial institutions. We may see the creation of a separate river of capital flows—one that
caters to autocrats and dictatorships fearful of Western financial reprisal.

That's a threat to world order. For more than 75 years, the United States has commanded the financial world and ensured its stability, largely due to the dollar's status as the world's reserve currency. However, in the digital future, the platform that undergirds the world's finances is likely to become more important than the currency that denominates it.

The natural extension of that principle: Both China and Russia are likely to do whatever they can to win the cryptocurrency footrace, particularly at a time and moment when the U.S. government appears suspicious on the subject and prepared to make crypto the enemy. The U.S. tone must change—fast. We must go from suspicion to encouragement, from fear to support.

That shift isn't the work of one executive order—it is the work of multi-year agenda-setting and advocacy. It operates at every level of government, and it is U.S. capitalism at its most strategic—the leveraging of the brainpower and manpower of the United States in a project of generational importance. Events in Ukraine have revealed the urgency of the project. Here's hoping that the Biden administration's implementation of the new order meets the moment.

Michelle Ritter is the CEO of Steel Perlot, a deep tech management company.

The views expressed in this article are the writer's own.