It has been argued that Russia could avoid Western sanctions for invading Ukraine using cryptocurrencies.
However, is it viable?
The small scale of the cryptocurrency market limits Russia’s ability to use cryptocurrencies to circumvent international sanctions, according to rating agency Moody’s.
Analysts predict that the sanctions will spur the Russian Federation to create alternatives to the US-led financial system.
People stand with placards at a demonstration held in central London on February 24 to protest against Russia's invasion of Ukraine. (Photo by JUSTIN TALLIS/AFP via Getty Images)
Take refuge in crypto-currencies
During Russia’s invasion of Ukraine, the imposition of sanctions, and the upheaval in financial markets that accompanied it, the role of cryptocurrencies like bitcoin was a major topic of discussion.
“Given the small scale and low liquidity of the ruble cryptocurrency market, we believe that, at this time, crypto assets are unlikely to provide a viable and effective means for individuals to avoid penalties,” Moody’s said.
The sanctions precipitated a catastrophic devaluation of the Russian ruble. During the first days of the invasion, the ruble lost about half its value, falling from 84 rubles to 154 rubles per dollar on March 7.
Moody’s bond rating division points to the recent growth in the volume of small transactions made by the Russians.
When anonymity can’t solve a problem
According to the agency’s researchers, despite their anonymity, crypto assets are not very helpful in avoiding monetary penalties.
Fear of hyperinflation first prompted Russians to invest in cryptocurrencies, but their investments have remained stagnant ever since.
Crypto total market cap at $1.63 trillion on the weekend chart | Source: TradingView.com
Despite initial optimism, Russian oligarchs appear to have largely refrained from trading bitcoin and other cryptocurrencies since the sanctions were implemented, indicating either that they have decided to wait for the sanctions to do the most damage, or they view the cryptocurrency industry with heightened suspicion.
Sanctions enforcement requires the ability to monitor transactions, usually through the financial system. Iran and North Korea have circumvented sanctions via cryptocurrencies, which operate outside the financial system.
The head of fraud investigations at Coinfirm, a blockchain risk management platform, told Al Jazeera that cryptocurrencies can be used to evade sanctions and hide wealth.
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Moving large sums of money is not easy
However, other crypto scholars say Russia’s situation is unique due to the severity of the economic impact and the country’s limited use of digital currencies.
“Moving large sums of crypto and converting it into useful currency is quite difficult,” Ari Redbord of TRM Laboratories, a blockchain intelligence firm, told Al Jazeera.
“Russia cannot use cryptocurrency to replace the hundreds of billions of money that may be restricted or frozen,” he said.
While illicit activities by bad figures that occur outside of centralized crypto exchanges or on unregulated digital asset platforms could go undetected and unreported to authorities, Moody’s said such activities are not significant enough. to allow sanctioned countries such as Russia to circumvent the restrictions.
The Russians are welcome in Dubai. (Image credit: Jumeirah)
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Welcome to the UAE!
Meanwhile, Dubai has become a haven for wealthy Russians fleeing sanctions imposed by the West in response to the conflict in Ukraine.
According to a source, real estate purchases by wealthy Russians in Dubai increased by 67% in the first three months of this year.
The UAE did not apply any sort of sanctions against Russia or criticize its invasion of Ukraine.
Due to its crypto-friendly laws, the Gulf nation has become a hub for the industry, making it a popular location for crypto investors.
Featured image DataDriveInvestor, chart from TradingView.com