As the Russian invasion of Ukraine progresses and Western economic sanctions against the Vladimir Putin regime mount, many observers are concerned about the possible use of cryptocurrencies by Moscow to circumvent them.
Ruble cryptocurrency purchase volumes are at all-time highs and the price of bitcoin has skyrocketed in recent days (15% since Sunday to almost $44,000)driven by the idea that the Ukrainian crisis is demonstrating the usefulness of a decentralized currency and not controlled by a government.
But can Russia really trust cryptocurrencies to dodge international sanctions? Why are Russians tempted by cryptocurrencies?
To put pressure on Russia, its banking and financial institutions have been excluded from the Swift international interbank system and both the European Union and the United States announced the blocking of the assets of the Russian central bank.
As a consequence, the ruble plummeted (-27% since the beginning of 2022) and is exchanged at more than 100 rubles per dollar, an unprecedented level.
Cryptocurrencies like bitcoin, on the other hand, work through a decentralized network: no central entity can be sanctioned and prevent user access.
As a result, Russians turned to bitcoin, with a record volume of ruble purchases, according to digital asset data provider Kaiko.
Another cryptocurrency gaining momentum in Russia is Tether, which is a stablecoin. that is, it is issued by a private company that guarantees the possession of assets equivalent to its issue to ensure that a Tether is worth a dollar.
Stablecoins, heavily criticized by Western regulators, are popular in countries where the local currency is suffering from severe devaluation. To assess whether Russian purchases come from a few particularly wealthy accounts or from a broader segment of the population, Kaiko looks at the average transaction size.
“We have been able to observe that the average transaction in Tether has increased but remains relatively low, which shows a shared interest between institutional investors and small buyers,” Clara Medalie, head of research at Kaiko, explained to AFP.
Are cryptocurrencies a long-term solution against sanctions?
Governments can ask platforms to restrict access to certain users, as Ukraine has recently done with respect to Russian accounts, and as US authorities are considering imposing.
The Chainalysis cabinet says it is “optimistic that the cryptocurrency industry will be able to counter Russian actions to use them as a means of evading sanctions” and notes that analysis of blockchains, the records that validate all cryptocurrency transactions, also allows Western governments to identify potential violations.
Countries like North Korea and Iran have used cryptocurrencies to resist economic sanctions: el first through computer attacks that have earned him billions of dollars; the second using its low-cost energy to “mine” -or manufacture- bitcoinsnotes Caroline Malcolm of Chainalysis.
But a direct use of cryptocurrencies, for example to sell wheat, oil or gas, of which Russia is a major exporter, is unlikely: although the cryptocurrency market has exploded, the volumes are still insufficientconsider a bitcoin broker who has been working in the commodity sector for a long time.
What effect is the war having on the cryptocurrency market?
Since Monday, the price of Bitcoin has skyrocketed, leading some crypto enthusiasts to see the Ukrainian crisis as proof of its usefulness. The role of cryptocurrencies is not limited to the Russian side: in Ukraine, the government on Saturday opened addresses to receive donations and received more than 17.1 million dollarsaccording to analytics firm Elliptic.
“We did not choose when or how our small industry became geopolitically crucial, but we are there,” Nic Carter, a partner at specialist fund Castle Island, ventured on Twitter.
Bitcoin’s surge is not only due to Russian purchases, since “it is a small market without much influence”, warns Medalie.
“The Russians are worth taking the risk of cryptocurrencies” but “Western authorities may not tolerate this bitcoin interference, which increases the risk of stricter regulation” and could weigh on its price in the future, warns Ipek Ozkardeskaya, market analyst at SwissQuote. (I)
Source: Eluniverso
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