Sanctions against Russia: How does it impact the crypto market?
By initiating military operations on Ukrainian soil, Russia sees itself hit by the United States but also Europe with heavy economic sanctions. But in the face of these sanctions, cryptocurrencies could be an effective means of circumvention.
As economic sanctions rain down on Russia, digital assets may well play a leading role. A possibility that materializes today by the increase of more than 10% in the price of Bitcoin and the crypto market over the last 24 hours. Back to the context to better understand how digital currencies could have their say.
An Arsenal Of Sanctions Deployed Against Russia
Day after day, the sanctions against Russia are getting heavier. And as usual, the flagship measures hit the wallet.Among the most notable measures, member states decided to seize the assets of the Russian central bank, making it more difficult for it to act on the rouble. Indeed, as Josep Borrell, head of European diplomacy, recently confirmed, about half of the reserves of the Russian central bank are kept by G7 countries.
The ban on trading with the Russian central bank therefore prevents it from using its large foreign currency reserves to buy rubles. This measure had a strong impact on the national currency, forcing the Russian central bank to raise its key rate to 20%. Leading to a mechanical rise in interest rates and therefore a fall in investment.
For the first time in history, the European Union decides to arm a country which is not a member. By supplying more than 450 million euros worth of arms to Ukraine. In France, Bruno Le Maire, Minister of the Economy, said he was ready to wage “a total economic and financial war on Russia.” In the streets of Moscow, concern has been palpable for several days and the queues at bank counters are getting longer.
Russia Removed From SWIFT System
And among the strongest sanctions is the banning of the SWIFT payment system, the ultimate financial sanction according to the United States. SWIFT is an interbank communication system. It is via this protocol that banks around the world can exchange payment orders and ensure the security of transfers.
In the coming days, the list of banks that will be excluded should be published. And it will probably not concern all Russian banks because that would prevent Europeans from buying basic necessities such as gas, coal or Russian oil. A bank like Gazprombank which manages the financial flows of the gas giant should therefore escape the sanction.
For observers, this sanction could be a double-edged sword for the member states of the European Union. Cutting Russian banks from the network could make it more difficult to export to Russia and pay for goods. Every year, France exports more than 5 billion euros worth of goods across the Urals. On the scale of the 27 Member States, the financial flow is close to 100 billion a year.
Cryptos As A Sanctions Circumvention Tool
The use of cryptos as a means of payment could be used as a means of circumvention by the Russians. Especially since the country is openly turned towards cryptos.
According to the financial institution TripleA, based in Singapore, nearly 17 million Russians (12% of the population) own digital assets. For a financial windfall of more than 22 billion dollars. Currently, the country ranks second in terms of crypto adoption. Just behind Ukraine and Venezuela, another country severely affected by US economic sanctions.
Digital assets are also very often put forward as a tool for circumventing sanctions. Whether in Iran or North Korea.
Either way, the markets seem to have fully priced in this possibility. If the announcement of the first Russian military operations had derailed the price of Bitcoin and the crypto market in general, February 25 saw all the projects resume what had been abandoned the day before. Clear sign that digital assets can play a leading role in this crisis. If Russia has wished to tighten the legislative screw on several occasions, it could change its tune in the days or weeks to come. From a threat, the crypto market could become an opportunity.
Did Russia Have It All Planned Out?
On February 23, the day before the first armed operations, the Russian ambassador to the United States declared that “the sanctions against Russia could not solve anything”. Before adding that he did not imagine “that a single person in Washington really expects Russia to change its foreign policy under the threat of sanctions”.
Russia’s crypto strategy also seems to revolve around the launch of the digital ruble. Indeed, if digital assets make it possible to circumvent the international payment system, the main difficulty lies in the fact that crypto exchanges often require a swap to fiat currencies such as the dollar or the euro. Thus making the conversion of digital assets into rubles much more complicated. On this axis, the launch of the e-ruble could make it possible to circumvent the conversion into dollars or euros. For now, the digital ruble is still in the testing phase.
Moreover, as the New York Times points out, Russia would have tools supposed to make transactions more difficult to trace. Tools similar to what Iran or North Korea had already used. If it seems difficult to believe that everything was planned, it is also impossible to consider that the Russians had not thought of these possible fallback plans.
Regarding exclusion from the SWIFT system, Russia has had an alternative system since 2017. It has more than 400 Russian banks and around ten banking establishments from other countries such as China or Belarus.