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Crypto thrives in crisis zones as investors flee crash

by Rina Chandran and Avi Asher -Schapiro | Thomson Reuters Foundation
Thursday, 23 June 2022 11:52 GMT

A man stands outside a damaged residential building located in Panfilova street following recent shelling in the course of Ukraine-Russia conflict in Donetsk, Ukraine June 20, 2022. REUTERS/Alexander Ermochenko

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Despite the crypto crash, charities in crisis hit places from Gaza to Kabul say it is their best option to receive cash quickly

  • More people in crisis-hit places are adopting crypto
  • Charities use crypto to deliver aid fast
  • Volatility in market can benefit charities

By Rina Chandran and Avi Asher -Schapiro

BANGKOK/LOS ANGELES, June 23 (Thomson Reuters Foundation) - When the Taliban seized power in August, the online marketplace Aseel quickly pivoted from selling handmade crafts to accepting donations of cryptocurrency to buy emergency aid for Afghans.

The e-commerce platform is one of a growing number of charities using crypto to support those who cannot access traditional banking systems and who continue to rely on the digital coins, even though their value has slumped.

"We cannot give cash payments because of the sanctions," said Aseel's technical lead Mohammad Nasir, referring to international sanctions targeting the Taliban.

Aseel takes donations in crypto, as well as official currencies, which it converts into digital coins to buy supplies such as food and first aid.

It is also raising funds for victims of Wednesday's earthquake in Afghanistan that killed about 1,000 people.

"We use stablecoins that limit the impact (of market volatility) on our operations," added Nasir, referring to crypto tokens pegged to the value of mainstream assets such as the U.S. dollar, and are considered safer havens than other cryptocurrencies, though their value has also slumped.

The fall in crypto markets - bitcoin has lost about 60% of its value this year and smaller coins have also been hit hard - has left many investors nursing losses.

It has mirrored a slide in equities prices, linked to investor concerns about rising interest rates and the growing likelihood of a global recession.

But crypto retains its appeal in places where sanctions and other disruptions hamper traditional financial systems, even though more countries are clamping down.

CRISIS LIFELINE

Bitcoin and other cryptocurrencies were designed to be free of central financial authorities such as governments and central banks. They allow for "peer-to-peer" transfers between users online without any intermediaries.

Their relative anonymity offers a haven for criminals, extremist groups and sanctioned governments - but champions say they also support citizens caught up in crises.

When Russia invaded Ukraine, activist Lyudmyla Kozlovska relied on bitcoin to buy supplies for people trapped in warzones.

"The bank system didn't work in the early days of the invasion," said Kozlovska, a Ukrainian based in Brussels and  founder of human rights organisation Open Dialogue Foundation.

"We wouldn't have been able to buy the first 100 bullet-proof vests to help civilians defending their houses without bitcoin," she told the Thomson Reuters Foundation.

Kozlovska said she was not substantially impacted by bitcoin's crash, as the funds were usually quickly converted into local currency.

"If we had kept the money in (bitcoin), it would have been a disaster," she said.

Ukraine has raised about $100 million in crypto since the start of the conflict in February, although the government's fund has been depleted by the crash.

Charities that accept crypto are still seeing generous donations despite the steep fall in its value.

Crypto donation platform The Giving Block has recorded more than $100 million in contributions to non-profits in the last year, said co-founder Pat Duffy.

"We see more donations when the market is bouncing up and down than when the values are increasing steadily," he said, adding that donors benefit from tax deductions, while charities also gain so long as they convert the digital coins quickly.

A Palestinian flag flies as the ruins of houses, which were destroyed by Israeli air strikes during the Israeli-Palestinian fighting, are seen, in Gaza Strip, May 25, 2021. REUTERS/Mohammed Salem

CHEAPER OPTION

Crypto is also thriving in Gaza, where Palestinians are locked out of popular international payment apps, and often have to pay high fees to local banks and middlemen to send and receive payments from abroad, said Ibrahim Elhout, a software developer in Gaza.

"It's really difficult to get payments in Gaza. We have restrictions ... from most of the world," said Elhout, whose overseas clients sometimes pay him in crypto.

People have to use "twisted ways ... and lose a lot of money," he said, whereas brokers in Gaza charge a 1%-2% fee to send or receive crypto from abroad and convert it into currency, thus enabling transactions far more cheaply and easily.

In Afghanistan too, where a majority do not have bank accounts, and the currency has nosedived in the past year, crypto is a more effective way to transfer money, said Sanzar Kakar, founder of HesabPay mobile app.

The app allows people to transfer money using crypto, and Kakar is testing a new version that will allow users to send and receive money using stablecoins, as well.

"More and more Afghans are using stablecoins as a way to send and receive money," he said, as there have been almost no remittances through international bank payments since August 2021, when the United States imposed new restrictions.

Not all crypto users are as eager: in El Salvador, which made bitcoin legal tender last year with the aim of saving money on remittances, adoption was marred by glitches, and the crash has roughly halved the value of government bitcoin holdings.

"Salvadorans have lost money ... and they are losing faith in bitcoin," said Oscar Salguero, a software engineer from the capital, San Salvador.

Afghan video blogger Farhan Hotak has also lost some money in the crash. But he is keeping his faith in crypto and said that interest among Afghans remains high.

"Of course, I always remind my followers of the risks," said Hotak, who often posts on crypto.

"But we Afghans know about risk more than anyone."

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(Reporting by Rina Chandran and Avi Asher-Schapiro; Editing by Sonia Elks and Katy Migiro. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit https://news.trust.org)

Our Standards: The Thomson Reuters Trust Principles.

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