WAR IN UKRAINE: RUSSIA TREMBLES OVER BITCOIN
Preventing capital flight at all costs — As a result of the unprecedented economic sanctions imposed by part of the international community, the Russian economy is faltering. A debt default is on the table as a huge recession is being considered. Some thought that Bitcoin and crypto-currencies could be a way to escape this sanctions. But it’s not all that simple. To limit the outflow of funds, the Russian Central Bank (CBR) is stepping up the pressure on its citizens and monitoring their every move, just like the Westerners, who want to enforce their sanctions at all costs.
Ukraine and Russia are relying heavily on cryptocurrencies to fund the war and bypass sanctions
As economic sanctions against Russia get tougher by the day, Russians are turning to cryptocurrency as a hedge against the plunging ruble. Bitcoin purchases have exploded in recent weeks. For Russia, the digital currency could be a good way to get around the sanctions and blockades imposed by the West.
Russia is not the only one to bet on cryptocurrencies. Ukraine too, notably by using it to finance the war. The Prime Minister has actually launched a call for donations on his Twitter account. Links to three digital wallets were shared. Holders of bitcoin, ethereum and USDT can transfer donations in just a few seconds. In just a few days, several tens of millions of dollars in cryptocurrency have been collected.
Blocking the spread of cryptos in Russia.
The EU and NATO could ask exchange platforms to ban transfers to Russian addresses. This idea is supported by the Ukrainian government, but has so far been rejected by Coinbase and Binance. The two industry leaders have emphasised their apolitical nature. Nevertheless, the platforms claim to respect international sanctions and to have blocked the access of Russian oligarchs. And this is confirmed: the main players in the sector have started to freeze thousands of accounts that could be used to circumvent the economic sanctions.
A big digital sweep. For the past few days, cryptocurrency platforms have been cleaning house in Russia to freeze all accounts linked to people or entities affected by Western sanctions. A large-scale operation since the Coinbase platform alone has identified at least 25,000! “All the accounts concerned have a direct or indirect link with people and entities that pose a problem,” explained the group’s legal manager, Paul Grewal, in a long message in which he reminds us that Coinbase is doing everything possible to comply with the sanctions decisions taken by Europe and the United States. Other broker such as its compatriot Kraken or the Chinese Binance, have also announced that they have blocked numerous accounts.
At the same time, Russian banks have an obligation to monitor their customers. Financial institutions must take special care of any natural or legal person who tries to withdraw assets from certain countries. These so-called “hostile” or “unfriendly” countries include more than 48 nations, including the United States, Great Britain and all the countries of the European Union.
The aim for the Russian government is to prevent any money from leaving the country. Capital that will be of great use to them in the future. The Russian justice system has been particularly severe lately in this respect. It foresees heavy fines and even criminal liability, if these restrictions are violated.
Bitcoin and Crypto are no longer a solution to escape the control of governments
Nearly 10 million Russians hold $63 billion in cryptos on various platforms. The authorities know this and their concerns seem justified. With the suspension of payment cards and then record inflation, cryptos are clearly becoming a plan B for Russian citizens. This is to make transfers, purchases or protect their savings. Unfortunately new deposits on the platforms seem to be compromised. The international media seems to be obsessed with stories of Russian oligarchs and their boats being seized around the world, but in reality it is mostly “normal” people who are paying the heaviest price for this situation, like always…
Thus the war in Ukraine highlights the weaknesses and virtues of crypto: it has no intrinsic value; it’s not stable like gold or the dollar, but it allows people to escape the control of governments and transfer money. “In God we trust” is written on the American dollar, but the cryptonauts find in this occasion their convictions of freedom: they don’t trust the governments that make the money and can deprive them of their savings.
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