Cryptocurrency firms have hit back at suggestions that Russia may use digital money to circumvent sanctions, claiming it’s too small and traceable a market to do so.
Unprecedented Western financial sanctions were levied against Russian oligarchs, financial institutions and state organizations in response to the country’s invasion of Ukraine.
However, there have been suggestions that cryptocurrency could be used to evade such measures. Reports claim President Biden is set to sign an executive order to tackle the issue this week.
Yet those in the industry have argued strongly that this isn’t necessary. Both Binance and Coinbase, two of the world’s biggest exchanges, claimed in separate blog posts that they are complying with sanctions efforts and that their scrutiny of suspicious customer activity is already highly effective.
This is helped because, unlike global fiat currency systems, crypto blockchains are public, traceable and permanent.
Binance claimed its onboarding and on-chain monitoring is so rigorous that so far, it has off-boarded just one customer due to the new sanctions regime. That’s because, over the past three years, it has blocked 20,000 accounts that were identified as high risk.
Coinbase, meanwhile, said it currently blocks 25,000 accounts traced to Russian entities, although it’s unclear exactly how many of these were identified proactively and how many as a result of the current round of sanctions.
“This figure isn’t specific to the time period since the invasion of Ukraine. Most of these addresses we identified prior to the invasion, and we have not seen a surge in sanctions evasion activity in the post-invasion context,” it explained.
A second reason to doubt reports that Russia is using crypto to evade sanctions is the size of the current market.
“The Russian central bank alone holds over $630bn in largely immobilized reserve assets. That’s larger than the total market capitalization of all but one digital asset, and 5-10 times the total daily traded volume of all digital assets,” Coinbase explained.
“As a result, trying to obscure large transactions using open and transparent crypto technology would be far more difficult than other established methods (eg, using fiat, art, gold, or other assets). This doesn’t mean that bad actors can’t try, but circumventing restrictions on this scale would require massive purchases that would be prohibitively expensive and detectable, as this buying activity would likely lead to price spikes.”
Binance agreed, claiming that only around 0.3% of global net worth is held in crypto today, including in Russia.
“Instead of focusing on banks, which hold 99.7% of the money, the media and politicians are focusing on 0.3% of the money. Even if you block all of that, does it even move the needle? No. Instead of focusing on Bitcoin, it may be far more effective to focus on banks, oil/gas, or other means,” it argued.
“Does Russia want to use crypto? No, it devalues the rouble. Russians converting from rouble to crypto weakens the rouble, which weakens Russia’s powers.”