An attractive feature of cryptocurrencies is that they do not depend on the international banking system to operate. As Russia invades Ukraine the West is imposing punitive sanctions on Russian banks and on the ability of Russian oligarchs to transfer money internationally. We suspect that there will be Russian use of cryptocurrencies to bypass sanctions by the US, EU, and others. Will this tactic work? Will it affect the values of cryptocurrencies like bitcoin?
US President Biden along with European allies has authorized “strong sanctions” in an attempt to punish Russia for invading Ukraine and to attempt to deter them from further aggression. As these sanctions ramp up they include baring Western transactions with various Russian banks and barring Russians from using the SWIFT system for moving money from bank to bank or country to country. Initially these sanctions cover about $1 Trillion in assets and are likely to include more as they are increased. Trade between Russia and the EU amounts to about $100 billion each for imports and exports with Russia running a yearly surplus for the oil, gas, and other goods it sells against manufactured goods from the EU. Sanctions will greatly affect this trade.
The twenty-five richest Russians have known riches ranging from $5 billion for the poorest to $25 billion for the richest. Many have homes, property, and bank accounts in the West, especially in the UK where some of these assets are being frozen. The rationale for going after these wealthy people is that the West believes they are the main supporters of Putin and will have the ability to influence him to stand down from the Ukraine invasion.
Cryptocurrencies to Avoid Sanctions
Figures are not available as to how much of Russian bank assets, oligarch assets, or Putin’s assets are in cryptocurrencies. But, bitcoin and others could be a way to bypass sanctions for Russian entities. Russia already has made deals with China to sell more oil, natural gas, and grain. And, like with Venezuela and North Korea, trade can involve bartering of goods for other goods or services. But, the world of cryptocurrencies is made for this sort of situation. Oligarchs, especially, will be able to buy and sell goods outside to sanctioned systems and avoid the pain meant to be inflicted by Western powers.
Will Russian Use of Cryptocurrencies Affect the Market?
Since you are probably not a Russian oligarch, bank, or Mr. Putin should this discussion concern you? It you have money invested in bitcoin or other cryptocurrencies it might. Bitcoin has had a tumble since November 2021 from the $65,000 range to the $35,000 range. It popped up to around $44,000 as Russian troops massed on Ukraine borders and Putin made his decision to invade. One might assume that insiders (read oligarchs) were in the position of inside traders with advance knowledge of the invasion likely to go forward and sanctions likely to happen. Was this upward surge caused by a handful of Russian billionaires or Putin himself buying bitcoin to protect assets from Western sanctions? With fighting raging in Ukraine the bitcoin market has settled back down so the war is not causing a blip in prices. Assuming that Russian insiders will have advance knowledge of Mr. Putin’s next moves, one might expect to see a reflection of that insider knowledge in bitcoin and other cryptocurrency markets. Please note that governments around the world have been considering how to regulate cryptocurrencies or issue their own digital currencies. Substantial Russian use of cryptocurrencies to bypass sanctions could speed up moves to regulate and issuance of digital currencies by central banks.
Russian Use of Cryptocurrencies to Bypass Sanctions – Slideshare Version