Bitcoin proves sanction breaker for Russia
Recent sanctions against Russia have caused a spike in cryptocurrencies as Moscow looks for ways to shore up its finances and steady its economy.
Bitcoin (BTC-USD) trading in the Russian rouble went into overdrive when the Ukraine invasion began last Thursday, with daily volumes rising about 260% from a day earlier to 1.3bn rouble (£9.2m, $13.5m), according to data from CryptoCompare.
The coin is now trading at $44,100 (£33,100), after rallying almost 20% on Tuesday, its sharpest daily increase since February 2021.
Some analysts have predicted that the Bitcoin price is likely to hit $50,000 before the end of this month amid rising geopolitical tensions and growing institutional investments.
“The direct implication of Russian sanctions was a surge in cryptocurrency prices, and especially bitcoin,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
“Bitcoin, which was moving along with the risk assets less than a couple of days ago, is now the asset that Russians and Ukrainians rely on to get their funds out of the traditional system which has become very hostile to them.
“Being able to transact value in bitcoin also helps Russian oligarchs go around the western sanctions. It may also help Russian companies and even the Russian central bank to move funds as these entities can no longer access US dollars, and most of the Russian banks are no longer part of the SWIFT system.”
Read more: Bitcoin: Binance and Kraken refuse to ban Russian users
The move to cryptocurrencies comes as the Russian rouble fell for a third straight day in Moscow trading on Wednesday, as fighting in Ukraine intensified.
This was after it already plunged 30% on Monday, and again on Tuesday, while the safe-haven dollar resumed its rise against other major currencies.
The Russian currency is now trading at 107 per dollar. The Moscow Exchange remains closed for a third day amid concerns of a market collapse as western sanctions tear through the Russian economy.
It is the longest shutdown for stock and derivative markets since October 1998.
Read more: Crypto live prices
The UK, EU, US, and Canada have targeted Russia’s $640bn (£478bn) in foreign currency reserves. Analysts have pointed to cryptocurrencies representing an alternative medium of international exchange to the dollar, bypassing banking systems.
“Once it’s in possession of large amounts of bitcoin that it’s mined, Russia can then use that bitcoin to pay for imports of goods and services that it might otherwise struggle to access, owing to US and European restrictions,” David Carlisle, director of policy and regulatory affairs at blockchain consultancy Elliptic, said.
“If the Russian government or Russian entities wanted to look for ways to evade sanctions using crypto, they could try to develop a network of complicit exchange services that would help them do that.”
Read more: Explainer: How economic sanctions work
Eric Michaud, co-founder of Off The Chain, a blockchain security conference, added: “We’re at a watershed moment in global history where central banks of nation-states are no longer in direct control of the financial instruments once used to impose global regulations. With cryptocurrency in its infancy, these decentralised currencies lack the agency and infrastructure needed for the ability to regulate institutions as large as Russia.”
Meanwhile, Marcus Sotiriou, analyst at the UK based digital asset broker GlobalBlock, said: "I am sceptical about the feasibility of this though. Despite Iran and North Korea having used cryptocurrencies to get around US sanctions, Russia’s case is unique.
"Russia is unable to use crypto to replace the hundreds of billions of dollars that will potentially be frozen due to the traceability of blockchain technology. On a blockchain ledger, every transaction, as well as the address associated, is viewable to the public.
"While the address is anonymous, the volume is transparent which could be flagged as suspicious. I assume that Russia has prepared for the exclusion from SWIFT by setting up relationships with banks in the likes of Asia."
Read more: What is the Swift payment system
Cryptocurrency exchanges such as Coinbase (COIN) and Binance are now facing pressure to block transactions with Russia.
Mykhailo Fedorov, Ukraine’s vice-prime minister, on Sunday called on “all major crypto exchanges to block addresses of Russian users”, saying it is “crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users”.
However, the chief executive and founder of Binance said it was not the place for cryptocurrency exchanges to block transactions.
“To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists,” Changpeng Zhao said.
“There are tens of thousands of exchanges globally. Many of them are very small, many of them are less secure. Many of them are less compliant. We don’t control the industry. I can publish my sanction list, you can publish yours, guess what? No one else is going to follow it. It just moves Russian users to other smaller platforms.”
Watch: What are the risks of investing in cryptocurrency?