No sooner had a press release by US Treasury Secretary Janet Yellen been inadvertently posted on her department’s website late on March 8 than a rally began in cryptocurrency markets, with bitcoin surging about 10 percent, to US$42,100. Yellen’s press release, which was supposed to be issued the following morning, showed that an executive order to be signed by President Joe Biden that day would direct government agencies to forge a unified approach on crypto that would balance risks against benefits.

Crypto advocates, who had feared a harsh crackdown, rejoiced over the presidential directive for a coordinated policy aimed at fostering “responsible innovation” and “promot[ing] U.S. leadership in technology” while also addressing threats to national security, financial stability and crime prevention. Kristin Smith, executive director of the Blockchain Association, declared: “If you are bullish on the long-term possibilities for cryptocurrencies to transform many of the foundational services of our lives, then this recognition by the federal government of crypto’s fundamental importance can only be viewed as an affirmation of that position.”

Such jubilance is a classic manifestation of crypto enthusiasts’ propensity for cockeyed optimism. Although the executive order was a win for the industry, in the sense that it didn’t include tough new regulations or take an adversarial tone, it pales in importance with another development — the international response to the Russian invasion of Ukraine — which has far greater ramifications for crypto, none of them favourable.

The imposition of financial sanctions on Moscow has vividly illuminated the global dominance of the US dollar and the power it confers on Washington to inflict devastating damage on foreign individuals, firms and entire nations. It has been a teachable moment, the topic in this case being the international monetary system. People who had no idea that the dollar holds such a unique status among world currencies have recently learned that the greenback is essential for all sorts of cross-border transactions, and that disconnecting a nation’s commercial banks and central bank from the US financial system can turn that country into an international economic pariah. What’s more, the public has seen that dollar “weaponization” can be implemented to even greater effect in concert with dozens of like-minded nations — for a noble cause.

These revelations, which have heartened millions sympathetic to Ukrainian independence, clash discordantly with crypto’s anarchic fantasy of stateless money, controlled by no central authority, assuring privacy to users, ultimately replacing “fiat” currencies and eroding the dollar’s hegemony. The education that members of Congress and their constituents have received in the past few days will make it much more difficult for the crypto lobby, well-heeled though it may be, to advance the case for encouraging the widespread adoption of dollar alternatives. Likewise, the arguments of crypto skeptics have gained new potency; measures that pose any sort of challenge to the greenback’s primacy will face questions about whether they might aid and abet Vladimir Putin and his ilk.

This is not because Russia will be able to evade sanctions in a meaningful way by using bitcoin, Ethereum or other crypto assets. Media reports suggesting such a possibility are woefully misinformed; for an economy the size of Russia’s, moving the necessary sums to conduct the nation’s international commerce through crypto exchanges wouldn’t be practical. But smaller sanctions targets, notably North Korea, have employed such methods, and it is all too easy to imagine that the use of crypto will enable some of Putin’s cronies to move their own money under cover, notwithstanding sanctions and capital controls.

Considerable momentum will therefore accrue to regulators and law makers in Washington seeking to prioritize the first three goals named in the fact sheet the White House issued to accompany Biden’s executive order: “Protect U.S. Consumers, Investors, and Businesses…Protect U.S. and Global Financial Stability and Mitigate Systemic Risk…Mitigate the Illicit Finance and National Security Risks Posed by the Illicit Use of Digital Assets.”

Moreover, allied unity against the Russian invasion enhances prospects for coordinating and harmonizing rules around the world concerning digital currency. That is a vital element for dealing with the numerous digital currency firms and crypto exchanges that have set up shop in locations such as Hong Kong, the Seychelles and the Cayman Islands in the hope of securing light-touch regulation. Global regulatory bodies including the Financial Stability Board, the Basel Committee on Banking Supervision, and the Financial Action Task Force, which have already advanced some proposals and are manifestly eager to tackle the issue more forcefully, will likely be able to count on credible sanctions threats against jurisdictions that fail to meet international standards.

Not long after Biden’s executive order was issued, the price of bitcoin fell to around US$39,000, nearly reversing its earlier spike. Whatever the reason — a coming to grips with reality, perchance? — the volatility was fresh evidence, if any were needed, that crypto fares poorly as money.

This article first appeared in Fortune.

——————————————————————————————————————————————————————