As the Russian invasion of Ukraine continues and the West’s economic sanctions against Vladimir Putin’s regime pile up, many observers are concerned about the possible use of cryptocurrencies to circumvent them.
Volumes of ruble cryptocurrency purchases are at record highs and bitcoin prices have been climbing in recent days (+15% since Sunday to nearly US$44,000), galvanized by the idea that the Ukrainian crisis is proving the usefulness of a decentralized currency not controlled by a government.
Why are cryptocurrencies tempting Russians?
To put Russia under pressure, its banking and financial establishments were excluded from the Swift international interbank system and the European Union, like the United States, announced that it would block the assets of its Central Bank.
As a result, the ruble is collapsing (-27% since the start of 2022) and trading at more than 100 rubles to the dollar, a level never seen before.
Cryptoassets like bitcoin operate on a decentralized network: no central entity can be sanctioned and prevent user access.
The Russians therefore rushed to bitcoin, with record volumes of purchases in rubles, according to the firm Kaiko.
Another cryptocurrency with the wind in its sails in Russia, Tether, a “stablecoin”, a cryptocurrency issued by a private company which guarantees to hold assets equivalent to its emission to ensure that a Tether is worth a dollar.
Stablecoins, much criticized by Western regulators, are popular in countries where the local currency suffers from a strong devaluation.
To gauge whether Russian purchases are coming from a few particularly wealthy accounts or from a larger slice of the population, Kaiko looks at the average transaction size.
“We were able to observe an average transaction for Tether which increased but which remains relatively low, which shows a shared interest between institutional investors and small buyers”, explains to AFP Clara Medalie, head of research at Kaiko. .
Crypto, a long-term solution against sanctions?
Governments can initially ask platforms to limit access to certain users, as Ukraine recently did with Russian accounts, and as US authorities are considering imposing.
The firm Chainalysis says it is “optimistic about the ability of the cryptocurrency industry to counter Russian actions to use cryptos to evade sanctions” and points out that the analysis of blockchains, these registers which validate all cryptocurrency transactions, also allows Western governments to identify possible violations.
Countries like North Korea or Iran have used cryptocurrencies to resist economic sanctions: the first through computer attacks that have brought in billions of dollars; the second by using its low-cost energy to “mine” bitcoin, reports Caroline Malcolm of Chainalysis.
But a direct use of cryptocurrencies, for example to sell wheat, oil or gas, of which Russia is a major exporter, is unlikely: if the cryptocurrency market has seen its size increase tenfold, the volumes remain insufficient, judges a broker from bitcoin, which has worked in the commodity industry for a long time.
What effect on the cryptocurrency market?
Since Monday, the price of bitcoin has surged, prompting some cryptocurrency enthusiasts to see the Ukraine crisis as proof of their usefulness.
The role of cryptocurrencies is not limited to the Russian camp: in Ukraine, the government opened addresses on Saturday to receive donations, and received more than 17.1 million dollars, according to the analysis firm Elliptic.
“We did not choose when or how our small industry became geopolitically crucial, but we are there”, advances on Twitter Nic Carter, partner of the specialized fund Castle Island.
The jump in bitcoin is in any case not attributable to Russian purchases alone, because “it is a small market without much influence”, warns Ms. Medalie, from Kaiko.
“Cryptocurrency risk is worth taking for Russians” but “Western authorities may not tolerate this bitcoin interference, which increases the risk of tighter regulation”, and could weigh on the futures price, warns Ipek Ozkardeskaya, market analyst at SwissQuote.
With Duty