Cryptocurrencies and sanctions in the spotlight
The role of cryptocurrencies like bitcoin has been a key talking point during Russia’s invasion of Ukraine and the enacting of sanctions and subsequent financial market turmoil.
And it has thrown up three big questions about how it is being used and what its future looks like.
Can cryptos be used to avoid sanctions?
After its invasion of Ukraine, Russia has been hit with a number of economic sanctions aimed at cutting the country off from the global financial system.
Key Russian figures and financial institutions have been placed on a U.S. sanctions list that effectively prohibits American firms from doing business with them. Meanwhile, the United States, European allies and Canada have removed key Russian banks from an interbank messaging system called SWIFT, which hampers their access to global financial markets.
The sanctions have caused the Russian ruble to plunge.
This has led to a debate about whether cryptocurrencies, especially bitcoin, could be a way for those on sanctions lists to evade the restrictions.
This is because bitcoin and other digital currencies are often decentralized, meaning they’re not issued or controlled by a central entity like a central bank. When crypto is sent to other users, it does not go through the traditional route of financial plumbing.
But there are a number of challenges.
First, blockchain, the technology that underpins bitcoin, is a public ledger of activity. It’s therefore possible to track the movements of funds from one account to another quite easily. This doesn’t make it a good tool for avoiding sanctions.
“The biggest misconception about crypto remains that it is untraceable and is primarily used for nefarious purposes, which couldn’t be further from the truth,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC.
Meanwhile, there isn’t enough liquidity for Russian oligarchs and companies to move their money around.
“Liquidity in crypto is still a fraction of the global currency market, and hence moving large amounts of money using crypto is difficult,” Ayyar said.
Cryptocurrency exchanges will also be on high alert.
“Exchanges that operate with strong processes and codes of conduct will no doubt be doubly watchful at this moment for funds that have nefarious origins,” Charles Hayter, CEO of data firm CryptoCompare, told CNBC.
On Thursday, Brian Armstrong, CEO of cryptocurrency exchange and wallet Coinbase, backed up many of these points in a thread. He said that every U.S. business has to follow the law.
“It doesn’t matter if your company handles dollars, crypto, gold, real estate or even non financial assets. Sanctions laws apply to all US people and businesses,” Armstrong said.
“So it would be a mistake to think crypto businesses like Coinbase won’t follow the law. Of course we will. This is why we screen people who sign up for our services against global watchlists, and block transactions from IP addresses that…