Experts in the field of cryptocurrency policy argue that the fears of prominent politicians that Russia is avoiding economic sanctions by using cryptocurrency are “completely unfounded.”
They say the crypto market isn’t big enough or deep enough to support the scale Russia needs, and that the country’s digital asset infrastructure is sparse.
Former US Secretary of State Hillary Clinton and current head of the European Central Bank Christine Lagarde are among the prominent figures concerned that crypto could be a means for Russia to get around the tough economic sanctions imposed over its invasion of Ukraine.
The country is largely cut off from the SWIFT system for cross-border transactions, and companies in America and other Western countries are prohibited from doing business or doing business with Russian banks and the National Welfare Fund.
Jake Chervinsky, head of politics for crypto-policy promoter, the US Blockchain Association, tweeted a lengthy thread on March 2 explaining how “Russia can and will not use cryptocurrencies to avoid sanctions.”
Chervinsky named three reasons why Russia is unlikely to use cryptocurrency to circumvent US sanctions. First, the sanctions are not limited to US dollars, and now any American company or citizen is prohibited from doing business with Russia. “It doesn’t matter if they use dollars, gold, shells, or bitcoin,” he said.
The second reason is that the economic needs of a country like Russia far exceed the current capacity of the cryptocurrency market, which Chervinsky called “too small, expensive and transparent to be good for the Russian economy.” In other words, even if Russia had access to sufficient liquidity, it still would not be able to hide its operations in such a market.
Finally, the country spent years trying to “prove the punishment” but failed to build any meaningful cryptographic infrastructure or even abolish cryptographic rules. Chervinsky says that cryptocurrencies are simply not part of Russia’s plans to contain the effects of sanctions.
The truth is that Putin has been trying to protect Russia for years, and cryptocurrencies are not in his plans. His strategy included diversifying Russian reserves with yuan and gold (not cryptocurrencies), moving trade to Asia (not blockchain), moving industrialization ashore, and so on. ”
However, Roman Beda, head of fraud investigations at blockchain research platform Coinfirm, told Al Jazeera on March 1 that cryptocurrencies can generally be used to “avoid sanctions and hide wealth,” as North Korea, Venezuela, and Iran have done.
But other experts have told the media that the situation with Russia is different due to the scale of the sanctions, the slow adoption of cryptocurrency, and the lack of depth in the markets.
Ari Redbord, head of legal and government affairs at cryptocurrency crime investigation firm TRM Labs, said blockchain transparency was a natural deterrent in this case.
“Russia cannot use cryptocurrencies to exchange hundreds of billions of dollars that can be blocked or frozen.”
On February 25, Cointelegraph reported that European Central Bank President Lagarde was keen to pass the Crypto Asset Markets Act (MiCA) of the European Parliament (MiCA) as soon as possible in order to provide European authorities with the means so that “crypto assets can actually be seized. Lagarde is pushing for the early adoption of guidelines that will not allow Putin to avoid sanctions using cryptocurrencies.
In an interview with Rachel Maddow on MSNBC this week, Hillary Clinton urged US President Joe Biden to ban Russia from trading cryptocurrencies. She and Mado discussed the national security threats that cryptocurrencies could pose, with Clinton saying, “Tasuri and the Europeans should seriously think about how they can stop the crypto markets from giving Russia an escape route.”
“I was disappointed to see some cryptocurrency exchanges, but not all, but some of them refuse to close deals with Russia because of some kind of libertarian philosophy.”
Related: European Parliament delays vote on proof-of-work cryptocurrency bill
Democratic Senator Elizabeth Warren also took the opportunity on March 1 to say that US financial regulators should reconsider digital assets because they risk “allowing Putin and his cronies to avoid economic pain.”
