Sanctions Against Russia Brought Cryptos Into The Spotlight

Since the start of Russia’s military campaign against Ukraine, the world leaders jumped on the sanctions train, with the U.S., Europe, and now Japan all considering measures to ensure that crypto assets are not used as a financial sanctions’ evasion tool.

While the European Union and the United States are still wary of ordering crypto exchanges to ban Russian individuals from accessing their platforms, Japan's crypto industry group and government officials began discussing such possible scenarios on Thursday, including banning exchanges from executing crypto transactions involving Russian individuals.

The financial war

Russia already received a portion of economic sanctions, including airspace blockage and banning Russian banks from facilitating cross-border payments via the SWIFT global payment network. However, policymakers are determined not to end there, as EU finance ministers agreed on Tuesday to "further investigate actions to avoid any circumvention of the sanctions, especially by the use of crypto assets."

The former head of the Bank of Japan's financial technology center, Naoyuki Iwashita, commented that this would not be the first usage of cryptos to dodge financial sanctions, since, during the Cyprus financial crisis in 2013, many wealthy Russian fled the off-shore haven, exchanging their cash for Bitcoin. 

"This was one of the first major cases where cryptocurrency was used for money laundering," Iwashita noted, adding that the West fears Russians are already taking the same approach.

Russians and crypto

Despite the data scrutiny, some entities like crypto payments company TripleA estimated that 12% of Russia’s population, or over 17.3 million people, actually possess some form of crypto. Meanwhile, according to data from Russia’s state news agency, Tass, Russian nationals have invested 5 trillion rubles (around $45 billion at current rates) in cryptocurrencies.

Furthermore, Russians seem to have taken the safe haven route, as data from CryptoCompare suggests that trading between the ruble and Bitcoin hit a nine-month high on February 24, reaching upwards of $12 million. Russia is also ranked in 18th place in terms of crypto adoption by its residents, according to Chainalysis. But, despite being relatively low on the crypto adoption rankings, Russia has the third-largest share of overseas transfers, after Turkey and Ukraine.

Global exchange CEOs dispute Russa’s sanctions evasion

The CEOs of both Binance and Coinbase have expressed their stance that using cryptos is not an effective tool to help Russia evade Western sanctions.

For instance, Binance’s CEO Changpeng Zhao stressed that the crypto sector, despite its massive growth over the years, is too small for Russia.

“If we look at the crypto adoption today, there is probably about 3% of the global population with some kind of crypto exposure (ie, owning some crypto). Of those, most only have a small percentage of their net worth in crypto. Less than 10% on average. So, there is probably only less than 0.3% of the global net worth in crypto today. This percentage applies equally to Russia.” Zhao commented, emphasizing that another core problem of Russia using cryptos is traceability and transparency.

Zhao’s statements were echoed by Coinbase CEO Brian Armstrong, who noted that traceability would be the biggest concern behind sanctions evasion.

“We don’t think there’s a high risk of Russian oligarchs using crypto to avoid sanctions. Because it is an open ledger, trying to sneak lots of money through crypto would be more traceable than using U.S. dollars cash, art, gold, or other assets.” Armstrong added.

Furthermore, the crypto community concluded that the real effectiveness for crypto assets, at least for now, is when they are transferred back to fiat currencies, which can be a cumbersome task, especially given that the governments could ask exchanges to block any cash-outs by Russian individuals.