Russia’s $124 billion crypto market is in danger of being paralyzed by sanctions

According to experts, sanctions imposed on Russia for its gratuitous invasion of Ukraine could hinder the development of the hundreds of billions of dollars worth of cryptocurrency sector.

Last week, US officials targeted Russian bitcoin miner BitRiver in the latest round of sanctions aimed at hurting the Russian economy. The U.S. Treasury Department’s Office of Foreign Assets Control said it was concerned Russia could make money from its vast oil reserves and other natural resources, thanks to a method of mining cryptocurrencies that consume a lot of money. expend a lot of energy as a way to raise funds and avoid Western sanctions.

“This is a strong signal from the Treasury Department’s Office of Foreign Assets Control that it will use every tool in its arsenal to prevent Russia from evading sanctions through crypto,” said David Carlisle, vice president of policy and regulation at crypto compliance firm Elliptic, in an email note.

The sanctions would cripple BitRiver and its various subsidiaries, preventing them from accessing US crypto exchanges or mining equipment. The move shows that US officials are “deeply concerned that Russia could use its natural resources for business, and even conduct its own cryptocurrency mining to evade sanctions.” , something Iran and North Korea have done in the past, Carlisle said. In fact, exploiting bitcoin’s production potential to evade Russian sanctions remains a major concern for global regulators, including the International Monetary Fund.

Russian Cryptocurrency Market

Separately, Binance, the world’s largest cryptocurrency exchange, said it was restricting its services to Russian users in response to the fifth wave of EU sanctions against Moscow. Russia’s Binance accounts with more than 10,000 euros ($10,885) in digital currency will be prevented from depositing or trading but only being able to withdraw, the company said.

“While these measures have limited potential for ordinary Russian citizens, Binance must continue to lead the industry in implementing these sanctions,” Binance said in an update on its website. mine. “We believe all other major exchanges will soon follow the same rules.”

Russia is home to a huge cryptocurrency market. These measures could disrupt the Russian cryptocurrency market, which Prime Minister Mikhail Mishustin estimates to reach 10 trillion rubles ($124 billion) this month, because of a host of other restrictions related to the war in Ukraine has stymied the country’s biggest banks and limited Russia’s access to finance.

The International Monetary Fund said in a recent report that digital asset mining could be used in the future to evade sanctions, and asserted that there is growing evidence that Russians are turning to cryptocurrencies as an alternative to the ruble as the local currency risks collapsing in the face of the country’s economic isolation.

“The sanctions are trying to weaken the Russian crypto industry, even when it is not yet properly conceived,” said Oleg Vyugin, a former top Russian central bank official. “They’re trying to make sure our crypto isn’t used to circumvent sanctions.”

The third largest bitcoin cryptocurrency mining center

Meanwhile, Cambridge University figures show that the country is a powerhouse in the field of cryptocurrency mining. In August 2021, Russia accounted for about 11% of global processing power used to mine new bitcoins, according to the Cambridge Center for Alternative Finance, making the country the third-largest mining hub after Kazakhstan.

With Kazakhstan’s political unrest leading to internet outages taking bitcoin miners offline, it’s likely that Russia’s market share in the sector could be even higher than it is now. However, it could end up being an exodus of miners from Russia to other “countries” such as Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan – where they can “use gas to provide energy” for its operations,” Charles Hayter, CEO of CryptoCompare told CNBC.

This is understandable, says Hayter, given that Russians have accepted cryptocurrencies despite the fact that they exist in a regulatory gray area of ​​the country. The Russian government has a “love-hate relationship” with digital assets. While Russia’s central bank is pushing for a ban on the use and mining of cryptocurrencies, President Vladimir Putin wants to regulate them instead. The country’s Federal Tax Service supports a plan to allow local companies to pay for goods and services internationally with cryptocurrency as sanctions disrupt commerce. According to Hayter, the Russian regime and its oligarchs “may see digital assets as a way to finance activities outside of Russia.”