Russian investors have almost quadrupled the volume of resources moved daily in cryptocurrencies, mainly Bitcoin, since Russian President Vladimir Putin invaded neighboring Ukraine about twenty days ago.
Major foreign consultancies that monitor the buying and selling operations of digital currency exchanges — such as Binance, Coinbase and Kraken — indicate that Russians have jumped from a daily average of $20 million in cryptocurrency transactions, before February 24, to US$75 million shortly after sanctions imposed by the international community.
That average during January and early February was about $15 million.
These transactions have been tracked by The Block and Kaiko, market research firms that produce reports for investors. The American The Block focuses its efforts on Binance, the world’s largest digital asset broker. The French Kaiko encompasses other brokerages.
Digital currency purchase records are being verified above all on Binance, the world’s largest digital asset counter founded by Changpeng Zhao, 44, who, according to Forbes, is the richest Chinese in the world.
After the start of the invasion of Ukraine, the average number of rubles traded in cryptocurrencies via Binance jumped from $11 million per day to $35.8 million.
This situation had already been predicted by the Deputy Prime Minister of Ukraine, Mykhailo Fedorov. Three days after the start of the war, he posted on his social media account an appeal for all major digital currency brokers to block the accounts of Russian users and Belarus, Putin’s ally.
However, Binance and other exchanges such as Coinbase have refused to block all Russian accounts as a way of tightening the financial siege imposed on the country, which has been seen as a way to ease sanctions evasion.
“We will not unilaterally block the accounts of thousands of innocent users,” reacted Zhao. “Cryptocurrencies are a way to promote more financial freedom for people all over the world. Unilaterally deciding to ban people from accessing their cryptocurrencies would go against the very reason they exist.”
Asked about it, Binance explained that it is “taking the necessary steps to ensure action against those who have had sanctions imposed, minimizing the impact for unsuspecting users.”
The company also says that if sanctions are expanded, “they will also be applied aggressively.”
Since the invasion, the international community has been trying to asphyxiate Russia through tough financial measures. The main ones were the withdrawal of the country’s financial institutions that operate in Swift — the global payment system — and the freezing of Russian reserves in foreign currencies. Most of this cushion is deposited in foreign bonds outside Russia, which can no longer be sold.
The atypical movement with cryptocurrencies signals, according to the consultancies, to the use of digital markets as an escape from restrictions. This practice has already been seen in Iran and North Korea, both of which are also subject to economic sanctions.
This Wednesday (2), German Finance Minister Christian Lindner said that the G7 powers are studying measures to prevent Russian individuals and entities targeted by sanctions for the invasion of Ukraine from using cryptocurrencies to circumvent control devices.
In addition to the G7, the European Commission is also studying whether crypto-assets are being used to circumvent sanctions.
The German minister did not specify what measures are being considered to limit the use of these digital currencies.
For Russian citizens, investing in cryptocurrencies is a way to avoid millionaire losses with the devaluation of their currency (ruble). They started using Bitcoin to pay bills or transfer values, as if it were a local currency.
On Monday (28), the ruble began to lose value against the dollar and the euro shortly after the announcement by Western nations of a set of tough sanctions to punish Russia for the invasion of Ukraine, including restrictions on the currency reserves of the parents.
This Wednesday (2), the ruble became worth less than US$ 0.01. Since the beginning of the year, the Russian currency has lost about 30% of its value against the dollar.
Russia responded to this move by doubling interest rates to 20% and telling companies to convert 80% of their revenues into foreign currency domestically, as the central bank, now under Western sanctions, halted foreign currency interventions.
Waiting for a crash in the local banking system, Ukrainians have also embarked on buying cryptocurrencies as a way to protect their wealth in local currency.
A report by Arcane Research indicates that they are mainly looking for Bitcoin and Tether (USDT), considered the most stable digital currency on the market. The exchange, however, is made with a premium of around 6%, according to Kaiko.
Another reason for this growth is the interest of Ukrainians fleeing the country to withdraw part of their wealth in other nations more easily, something guaranteed by cryptocurrencies.
“Cryptocurrency has become a weapon of war,” said lawyer Guilherme Vieira da Silva, a partner at Demarest, which works with financial operations involving cryptoassets. “It’s a way for Russians and Ukrainians to preserve their wealth in the face of Western-imposed action.”
For him, the invasion of Ukraine will serve as a test for cryptocurrencies to be tested as a safe haven against the volatility of currencies of countries involved in war.
“Before, there was only gold as an option,” he said.
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