Crypto Assets: A Double-Edged Sword in Crisis

Crypto Assets are not inherently good or bad. They are a tool. Like any tool, their effectiveness depends on how, when, and where they are used.

Original Title: “How Crypto Assets Can Help (or Harm) During a Crisis”

**Written by:**Crypto Unfiltered

Compiled by: Block unicorn

Foreword

When a crisis strikes, whether it be war, natural disasters, or economic collapse, traditional financial systems often struggle to cope. Although Crypto Assets are still an emerging phenomenon, they draw significant attention during these times. But are they always the hero? Not necessarily.

Let’s explore through some real cases to see why background is more important than ideology.

When Crypto Assets come into play

Russia-Ukraine War: Crypto Assets as a Lifeline

The Russia-Ukraine war in 2022 plunged the global financial system into chaos. Banks are unavailable, currencies are unstable, and millions of people are in dire need of financial support. Cryptocurrencies stepped in quickly and effectively. Ukraine has raised more than $100 million through cryptocurrency donations alone, providing rapid assistance directly to those in need. Unlike traditional systems, cryptocurrency transfers are instantaneous, transparent, and unaffected by geopolitical blockades. This is undoubtedly a strong illustration of cryptocurrencies as a lifesaver.

However, the same technology may also fund wars. Reports indicate that some Russian entities are using Crypto Assets to evade international sanctions. Although it is on a smaller scale compared to traditional finance, this highlights the dual-use nature of encryption technology.

Argentina: Escape from 100% Inflation

Argentina has been battling hyperinflation for decades. In 2023, inflation is over 140%. The depreciation of the local currency, the peso, and the imposition of restrictions on foreign currency purchases by banks, make it difficult for people to protect their savings. Many people turn to stablecoins, such as USDT (Tether) and USDC, as an alternative to the digital dollar.

People buy stablecoins through peer-to-peer applications and Crypto Assets exchanges instead of holding pesos that depreciate monthly. Some use Bitcoin or Ethereum as long-term hedging tools, but stablecoins have become the preferred tool for daily inflation resistance.

Lebanon’s Banking Crisis: Alternative Financial Escape Routes

Lebanon has been facing a severe banking crisis since 2019. Banks freeze people’s life savings, and many people are unable to access their money. Cryptocurrencies offer a way out. Lebanese turned to stablecoins and bitcoin as reliable stores of value and means of trading, which came into play when banks refused service.

Crypto Assets have become an important tool for financial survival, but their popularity remains an issue. Only those who are technically skilled and have the resources to access Crypto Assets can benefit from them, highlighting the limitations of this technology in widespread crisis response.

When Crypto Assets Are in Trouble

FTX Collapse: Trust Broken

Crises are not only caused by war or natural disasters; sometimes they also arise from financial collapses within the Crypto Assets world. The collapse of the Crypto Assets exchange FTX at the end of 2022 demonstrated how wealth and trust can vanish overnight. Due to mismanagement and fraud, assets that investors believed to be safe evaporated in an instant, resulting in billions of dollars lost.

This disaster reveals a harsh truth: the world of Crypto Assets is largely unregulated and poses high risks. While Crypto Assets offer the freedom of decentralization, this freedom can lead to catastrophic losses in the absence of proper safeguards.

Venezuela’s Economic Collapse: A Double-Edged Sword

Venezuela has experienced one of the worst economic crises in history, with hyperinflation leaving the local currency almost worthless. In the midst of the chaos, cryptocurrencies have been a lifesaver for many Venezuelans. People are turning to Bitcoin and other cryptocurrencies to protect their savings and buy essential goods. It became a parallel financial system that provided millions of people with a way to survive in the event of the failure of government-issued currency.

However, there is another side to the story. Crypto Assets scams and volatile investments have also targeted desperate Venezuelans, eager for quick financial solutions. Ponzi schemes and fraudulent tokens appeared almost overnight, exploiting people’s vulnerabilities and despair. Here, Crypto Assets showcase both the potential for empowerment and the risks of being exploited.

Why Background is Crucial

Crypto Assets are neither absolutely good nor bad. They are a tool. Like any tool, their effectiveness depends on how, when, and where they are used.

In authoritarian regimes:

Crypto Assets provide financial freedom. In countries like Iran or Venezuela, where the government restricts banks and freezes accounts, Crypto Assets allow people to escape surveillance and store wealth abroad.

In places with loose regulation:

People are also more easily deceived. Rug pulls, fake tokens, phishing attacks - these are real risks, especially for new users chasing profits in desperate times.

In developed economies:

Cryptocurrencies are primarily an investment vehicle, a speculative asset. People buy it in the hope that the price will rise. But during a crisis, such as a recession, prices tend to fall – just when people need cash most.

In unstable economies:

Crypto Assets have become a backup plan. When banks fail or currencies collapse, it is a way to transfer funds. This is to avoid bankruptcy.

What We Have Learned

The summary is as follows:

Crypto Assets are beneficial in the following situations:

• Need to quickly transfer funds across borders.
• The local currency is collapsing.
• The bank is frozen or subject to strict restrictions.
• Need financial privacy and control.

Crypto Assets can cause harm in the following situations:

• Use without understanding the risks.
• Keep funds on centralized platforms.
• Chase speculation instead of managing risk in a crisis.

Final Thoughts

In times of crisis, the true value of Crypto Assets is revealed – it provides a financial alternative when traditional systems falter. But like any powerful tool, its advantages entirely depend on how responsibly it is used.

Understanding this balance won’t make you a Crypto Assets expert overnight, but the next time you hear about the topic of Crypto Assets in a crisis, you’ll see the bigger picture, and that’s enough.