US can punish Russia with cryptocurrency

 US can punish Russia with cryptocurrency

The US may find a way to restrict access to Russia's Bitcoin and Ethereum systems to avoid the country "dodging" sanctions.

The Office of Foreign Assets Control (under the US Department of the Treasury) has the ability to handle cryptocurrency exchanges and other digital currency platforms that violate the ban on dealing with blacklisted Russian banks. .

Marlon Pinto, director of the UK-based AnotherDay risk consulting firm, said that cryptocurrencies make up a larger part of Russia's financial system than most other countries. A Russian government report estimates that there are more than 12 million cryptocurrency wallets, where digital assets are stored, opened by Russian citizens with an amount of about 2 trillion rubles, or about 23.9 billion USD. . Besides, data for August 2021 from Cambridge University shows that Russia is the third country in terms of Bitcoin mining.

According to analytics firm Elliptic, Iran - a country that faces strict sanctions from the US and has limited access to global financial markets, has used cryptocurrencies to circumvent sanctions. Iran allows the use of oil to power Bitcoin mining. The country collects digital currency in exchange or uses it to buy imported goods. This allows Iran to avoid sanctions with payments through financial institutions.

However, analysts say that enacting sanctions on cryptocurrencies will be difficult. These currencies are by nature designed to exist without borders and largely outside the financial system regulated by the government. On the market, there are also more and more exchanges that are not sympathetic in cooperating with the regulator, do not provide information about customers and suspicious transactions.

A crypto mining farm in Norilsk, Russia. Photo: Bloomberg

A cryptocurrency mining "farm" in Norilsk, Russia. Photo: Bloomberg

The feasibility of this sanctions is not clear, but in the immediate future, Russian Bitcoin transactions are increasing dramatically. Data from France-based Kaiko, a cryptocurrency research unit, shows that the volume of Bitcoin denominated in rubles rose to nearly 1.5 billion rubles last weekend, reaching its highest level since May/May. 2021. Centralized trading on Binance. At the same time, the trading volume between Bitcoin and the Ukrainian hryvnia also spiked, but not as high as October, taking place on two exchanges Binance and LocalBitcoin.

Similar trends are seen in Tether as well. It is considered the world's largest stable cryptocurrency by market value, whose sole mission is to stabilize the price of the volatile cryptocurrency market by maintaining a 1:1 exchange rate with the USD. Kaiko data shows that the volume of transactions between Tether and rubles also increased to an eight-month high, reaching 1.3 billion rubles over the weekend.

Trading volumes of ruble-based cryptocurrencies spiked as investors scrambled to find ways to reduce the Russian currency's share of net assets. This stems from fear of stricter Western sanctions. The Russian currency fell more than 8% to 90 per dollar last week and extended its slide by 28% early on Feb. 28, hitting a record low of 118 rubles to the dollar.

Over the past week, the Russia-Ukraine war has taken the price chart of Bitcoin, Ethereum and many other cryptocurrencies on a roller coaster ride. Although the Bitcoin market hit the bottom of $35,000 at one point, this weekend has recovered along with the stock market.

However, many observers say the tug-of-war measures between the two sides could trigger fresh volatility, soaring commodity prices and inflation fears roiling market sentiment.

Mikkel Morch - CEO of ARK36 Digital Asset Fund noted that the situation is still volatile and the $40,000 level is still a resistance level. Meanwhile, Alex Kuptsikevich, senior financial analyst at FxPro, said that if the situation in Ukraine escalates, Bitcoin could fall below $30,000.