Is Russia maneuvering past the western sanctions regime with Bitcoin?

After the new economic sanctions imposed by the West, the Russian ruble is under pressure and has already depreciated sharply against the US dollar (see Figure 1). In order to support the currency, the Russian central bank has already reacted and raised the key interest rate 20 percent raised. It is said that one of the aims is to protect the savings of citizens from depreciation. In addition, the central bank banned the foreign sale of securities.

The West is also tightening sanctions against the Kremlin. In the fourth package of sanctions, European Union (EU) more sanctions against Russia. This shows that, among other things, trading with the Russian central bank will be prohibited. In addition, all assets of the Russian central bank abroad are to be frozen. Also several private payment service providers like Visas and Mastercard have now participated in the sanctions and excluded a number of Russian financial institutions from their payment network. There were also pictures of long queues online Metro stations in Moscow the round after Google and Apple Pay ceased their services in the country.

So what to do if the currency in your own country crashes? It would be obvious to flee to tangible assets such as stocks or real estate. However, the Russian central bank quickly put a stop to this escape route and suspended trading on Monday, February 28th. The suspension was then extended to Tuesday. It is currently unclear whether further interventions will follow. In addition, Russian President Putin imposed a ban on transferring foreign currency abroad. Even before the sanctions were tightened, the leading Russian index (RTS) had already fallen by a third.

The nervousness of the Russian population has increased noticeably over the past few days. Long lines are already forming in front of the banks, which reinforces the fear of a bank run for many. In such a situation, cryptocurrencies such as Bitcoin offer an interesting alternative. This flight could be observed in the past – albeit to a much lesser extent – in Turkey, for example, when the Turkish lira devalued extremely there. Figure 2 shows how much the bitcoin price has risen against the ruble in recent trading days. The strong price movement began on Sunday, February 27th. Since then, the price has increased by almost 45 percent.

It is therefore understandable that the path via Bitcoin and Co. is seen as one of the few ways out by many Russians to circumvent the sanctions or even to bring the remaining savings to safety. The particularly high trading volume in rubles suggests that this flight to cryptocurrencies is already in full swing – BTC-ECHO reported.

However, the first voices were promptly raised, taking this development as an opportunity to demand tougher action by the regulators in the matter of crypto. One of the most prominent was US Senator Elizabeth Warren, who is considered a die-hard Bitcoin opponent.

In her Twitter post (see above), the 72-year-old refers to one New York Times-Article revealing that many cryptocurrencies are being used as an escape route by Russian companies and oligarchs to circumvent Western sanctions. The article also mentions that Russia could also use its digital ruble in the future to save itself the detour via the US dollar.

To close this loophole, Ukraine’s Digital Minister, Mykhailo Fedorov, on Sunday, February 27, appealed to some of the world’s largest crypto exchanges to freeze not only the accounts of individual users, but also those of the Russian population at large (see tweet below).

The crypto exchange binance had already shown cooperation and announced the freezing of some Russian accounts – we reported. They want to put together a kind of task force that “could take the necessary measures”. A precise procedure has not yet been set out, but targeted action against individual Russian decision-makers would be conceivable. binance stressed at the same time to the US news channel CNBC:

Cryptocurrencies are designed to offer more financial freedom to people around the world. Unilaterally deciding to ban people from accessing their cryptocurrencies would go against the very reason cryptocurrencies exist.

Source: CNBC

octopusesCEO Jesse Powell posted a statement on Twitter on February 28. He can understand the concerns of the Ukrainian digital minister, but he can octopuses not simply freeze accounts without a legal obligation.

Other exchanges like FTX or Crypto.com At the time of writing this article, they had not yet commented on the extent to which they intended to respond to the Ukrainian digital minister’s request.

The appeal by the Ukrainian digital minister was also directed at the exchange-listed trading platform Coinbase. This does not offer any service in Russia. However, users can send cryptocurrencies to Russian addresses. In a Explanation the company announced that it will not introduce blanket bans on transactions with Russian addresses, but will only block accounts or transactions involving sanctioned individuals or organizations. A unilateral and total ban would punish ordinary Russian citizens, the site said Coinbase.

In the midst of this geopolitical tension, Bitcoin and Co. are currently in an extremely precarious position. So fitting that the Washington Post only a few days ago called the war the world’s first “crypto war”. As is now being shown in Russia and also in Ukraine, Bitcoin is doing exactly what it was designed to do. It protects the population from the rapid depreciation of the respective national currencies and thus reduces dependence on central authorities.

The fact that Russia – especially the Kremlin – would increasingly rely on crypto in the event of increasing isolation should not surprise anyone. Whether the Kremlin will rely entirely on Bitcoin in the event of a complete SWIFT exclusion or rather on a specially created CBDC is still completely unclear at this point in time. However, there is a risk that the political conflict will spill over into the crypto market, for example with Russia increasingly relying on Bitcoin. This would be fodder for all critics of Bitcoin and would ultimately mean enormous headwind for the entire crypto space.

However, one should also not forget that over $30 million has already flowed to Ukraine in the form of crypto donations. On Tuesday, March 1st, the news came that Ukraine would from now on accept polkadot donations.

It should now be clear to anyone who has dealt with the underlying topic a little that cryptocurrencies such as Bitcoin cannot simply be banned. On another page, however, is the question of why crypto exchanges as companies should enjoy a special position in terms of Russia sanctions. After all, many banks have now pledged to freeze Russian assets abroad.