Crypto crash: These countries bet big on crypto. What happens now?


What do El Salvador, Iran and North Korea have in common? They’re all feeling the heat in the great crypto crash.

The crash of cryptocurrency prices has been well documented, particularly when it comes to retail investors and traders who have lost huge sums of money.

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But crypto isn’t only an economic story — and the crash isn’t only hitting individual investors. For countries ranging from El Salvador to North Korea, Venezuela to Iran, cryptocurrencies have also emerged in recent years as a tool for achieving geopolitical goals — goals that are taking a hit along with all the other damage done in the plunge in crypto’s value. Dictators in particular have latched onto crypto for a variety of reasons; in many cases, a relatively new economic and technological system is colliding with something as old as politics.

“What is underneath the hood, I think, is opportunistic people, legislators or politicians looking for revenue,” Yaya J. Fanusie, an adjunct senior fellow at the Center for a New American Security and a former CIA analyst, told Grid. “There’s this sort of alliance right now between the private sector or the tech sector and the politician.”

Even the war in Ukraine — specifically, a crypto-fueled effort to support the Ukrainian resistance — has been affected. In the midst of a cryptocurrency winter, the impact is being felt across the globe.


Currency of last resort

Cryptocurrencies are often viewed as a form of risky speculation, but in some countries they’re attractive because they are seen as safer than the local currency. In Lebanon, Argentina and Venezuela, Bitcoin and other cryptocurrencies have exploded in popularity amid rampant hyperinflation. (Venezuelans suffered a 2021 inflation rate that reached nearly 700 percent.) Citizens of these countries have flocked to crypto as a better bet than the fledgling currencies of their respective nations.

“You have a bunch of countries where the regular central bank, for one reason or another, doesn’t really work anymore,” David Yermack, an economics professor at New York University who researches cryptocurrency, told Grid. “I think that the availability of Bitcoin as an alternative to the fiat currency has been somewhat helpful to these countries.”

One of the foundational narratives of Bitcoin is that it can be a hedge against inflation. While a local currency might decrease in value over time due to the machinations of a central bank or the printing of more money, Bitcoin will retain a fundamental value because only a finite amount will ever be created. Experts say this may be a legitimate way for an inflation-ravaged nation to think of cryptocurrency — in effect, while the national currency loses nearly all its value, crypto will hold at least some chance of rebounding.

Crypto has also been useful for governments under heavy international sanctions. In Iran, where access to the international financial system has been hampered by sanctions, the government has openly promoted cryptocurrency mining as a workaround.

Here’s how it works: Iran is short on cash but rich in oil and gas that it now has a hard time selling on global markets. Crypto mining requires a notoriously high amount of electricity, and in 2019, Iran became one of the world’s first countries to formally legalize industrial-scale crypto mining. The government licensed mining operations, which rely on fleets of computers performing intensive calculations, and provided them with free electricity. The Bitcoin these operations generate are then sold back to the country’s central bank. Rather than selling its oil and gas on the international market for dollars, Iran’s workaround means it is essentially converting oil and gas into Bitcoins.


The workaround is working. According to a 2021 report from the research company Elliptic, some 4.5 percent of global Bitcoin mining takes place in Iran, bringing in annual revenues of around $1 billion a year. The practice may have gotten too popular: The Iranian government recently shut down more than 7,000 unlicensed crypto farms because they were placing a strain on the country’s power grid in the midst of an energy crisis.

Crypto trading has also exploded among the Iranian public — again, because sanctions have made other investing and trading difficult. As many as 12 million Iranians own crypto, according to one of the country’s exchanges. These investors will have taken a hit in the recent crash as well.

But crypto’s days of unregulated trading may be numbered. In recent months, the U.S. and other governments have been signaling a new willingness to file charges against cryptocurrency exchanges — in Iran and elsewhere — that skirt international sanctions.

Tanvi Ratna, an India-based cryptocurrency analyst, told Grid that the recent global sanctions against Russia have included measures to monitor cryptocurrency transaction. “When the sanctions started coming out after the start of the war in Ukraine, there was a lot of focus on making sure crypto exchanges were in compliance with the sanctions,” Ratna said. “So you’re hearing less about crypto being used in this space.”

El Salvador: A Bitcoin nation falters

No world leader has embraced the world of crypto with quite the same missionary zeal as Salvadoran President Nayib Bukele. In September 2021, El Salvador became the first country in the world to accept Bitcoin as legal tender, requiring businesses to accept the currency alongside the U.S. dollar (the Salvadoran government hasn’t issued its own currency since 2001) and giving citizens financial incentives to download a Bitcoin trading app called “Chivo Wallet.”

Bukele seems to genuinely believe that Bitcoin is the future and that by making his country a crypto-friendly destination, he can attract investment from around the world. On a more practical level, the government has argued that Bitcoin can make it easier for Salvadorans to receive remittances from relatives broad.

“In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy,” Bukele told a Bitcoin conference in Miami in 2021. “And in the medium and long term, we hope that this small decision can help us push humanity at least a tiny bit into the right direction.”

Adoption has been spotty. Only 1 in 5 businesses in El Salvador is regularly using Bitcoin. And more than 60 percent of those who’ve downloaded Chivo Wallet have never used it. Technical glitches with the app haven’t helped.

Bukele has been undaunted, however, regularly touting Bitcoin on a Twitter account laden with crypto-speak and unveiling plans for a proposed “Bitcoin City,” built on designs inspired by Alexander the Great, to be created at the foot of a volcano. More concerning, Bukele has plowed more than $100 million of the country’s reserves into Bitcoin. In May, Reuters estimated that the recent Bitcoin crash had erased nearly a third of the government’s holdings, but Bukele has continued to invest, boasting that El Salvador is “buying the dip.”

Yermack, the NYU economics professor, said that what Bukele is doing has no precedent.


“There are countries where the economy is very tied to mineral wealth or the price of oil, but it’s hard to think of a country that essentially speculated on a risky investment as a strategy for growth,” he told Grid.

Bukele’s Bitcoin play has put the country at odds with the International Monetary Fund, from which it is seeking $1.3 billion in financing. The IMF has said that in order to receive a new credit line, El Salvador will have to address credit risks “related to the adoption of bitcoin as legal tender.” Bukele shows no signs of doing so.

A Salvadoran economic analyst, who spoke on the condition of anonymity owing to the political climate in the country, told Grid that the real impact “lies in the opportunity costs of scarce resources. … There are social needs the country needs to address — for instance, the 13.6 percent of children under 5 years old who are stunted because of malnutrition.”

While cryptocurrencies are often touted by advocates for their decentralization and lack of state control, El Salvador’s Bitcoin experiment has coincided with growing authoritarianism in the country. Bukele has sent in troops to intimidate the country’s legislature and has undermined the independence of the judiciary.

All this has made it harder for anyone to stand in the way of the plans of the president who has described himself on Twitter as “the world’s coolest dictator.” (It’s not clear if he was joking.)


How crypto helps dictators

El Salvador is only one case of crypto enthusiasm among authoritarian regimes and dictators co-opting crypto for their own purposes.

North Korea is a large-scale example and one that involves cryptocurrency-related crime. North Korea and affiliated hacker groups have stolen millions in crypto from around the world and used those funds to bankroll the country’s weapons programs.

As former CIA analyst Sue Mi Terry wrote for Grid earlier this year, “the regime obtained nearly $400 million in stolen cryptocurrency last year alone. North Korea has also legally bought crypto assets such as bitcoin, which is not controlled by governments or banks, hard to trace, and thus a sanctions-proof investment.”

North Korea is now feeling the pain of the cryptocurrency plunge as well. One example: The blockchain analytics firm Chainalysis looked at one set of North Korean crypto funds and found its value had fallen recently from $170 million to $65 million.

For dictators, there seems to be a crypto paradox: On the one hand, according to Fanusie, dictators often hate crypto because it provides avenues for citizens to operate outside a country’s official financial structure. One of the value propositions of crypto is that in some cases there is no bank or other institution acting as an intermediary between transactions. A current example: The Kremlin may fear that Russian citizens will use crypto as a vehicle for pulling cash out of the country, thereby further damaging the economy. Indeed, Russia recently banned cryptocurrency payments in the country.


But authoritarian leaders have also learned to use crypto to their benefit — as a sanctions-busting mechanism (Iran), a revenue source (North Korea) or a hedge against rampant inflation (Venezuela).

In Ukraine, crypto donations, washed away

In the case of the war in Ukraine, the crypto crash has shown both the opportunities and potential nightmares that cryptocurrencies bring.

After Russia’s invasion, there was an outpouring of crypto donations to Ukraine, to the tune of more than $63 million in the first month of the war. An April report put the number north of $100 million, and a recent Grid review showed that crypto donations to Ukraine have continued. These donations have been used to purchase bulletproof vests, helmets, walkie talkies and other supplies. Even Russian dissenters have turned to crypto to funnel funds to Ukrainian refugees.

As cryptocurrency values have dropped, so has the value of all these crypto donations.

When Russia invaded, the price of Bitcoin was around $38,000, while Ethereum was hovering around $2,600. Today, those top two cryptocurrencies sit at about $23,000 and $1,500, respectively, and the price drops have driven down the value of all those donations. Put differently, that $100 million would now be worth roughly $60 million.


“In a time of crisis, to get money to crowdfund funds quickly from around the world, crypto, volatile price or not, is beneficial,” Fanusie said. As he and Sale Lilly, senior policy analyst at the Rand Corporation, pointed out, the flip side of crypto’s volatility is that those donations could have risen in value as well.

“The risk to donations is symmetrical,” said Lilly. “Had the Ukraine conflict started roughly around when covid did in April, March of 2020, those donations would have been double or triple what they were.”

There’s another problem in the case of Ukraine: crypto crime. As Grid has reported, cybercriminals have targeted Ukrainian users’ crypto wallets through malware, conducted phishing attacks and even spun up fake coins purporting to help Ukraine.

For individual investors, cryptocurrencies have been marketed as a way to exploit inefficiencies in the traditional financial system or bypass it altogether. In a global economy dominated by a few wealthy countries and run largely on U.S. dollars, several countries have seen them as a way to chart their own, more independent, economic course. In the wake of the crypto crash, some of those countries are getting burned — just as individual investors have been.

Thanks to Lillian Barkley for copy editing this article.

  • Benjamin Powers
    Benjamin Powers

    Technology Reporter

    Benjamin Powers is a technology reporter for Grid where he explores the interconnection of technology and privacy within major stories.

  • Joshua Keating
    Joshua Keating

    Global Security Reporter

    Joshua Keating is a global security reporter for Grid focused on conflict, diplomacy and foreign policy.