Cryptocurrency firms have responded to concerns about Russia potentially using digital money to bypass sanctions by asserting that the market is too small and traceable for such activities. Following the imposition of Western financial sanctions on Russian oligarchs, financial institutions, and state organizations in light of the country’s invasion of Ukraine, there have been speculations about the use of cryptocurrency to evade these measures. Reports have suggested that President Biden is planning to sign an executive order to address this issue.
However, leading cryptocurrency exchanges like Binance and Coinbase have pushed back against the need for such actions. In separate blog posts, both exchanges emphasized their compliance with sanctions efforts and highlighted the effectiveness of their monitoring systems for detecting suspicious customer activity. They pointed out that unlike traditional fiat currency systems, crypto blockchains are transparent, traceable, and permanent, making it difficult to conceal illicit transactions.
Binance disclosed that its stringent onboarding and on-chain monitoring processes have led to the off-boarding of only one customer under the new sanctions regime, having already identified and blocked 20,000 high-risk accounts over the past three years. Similarly, Coinbase revealed that it has blocked 25,000 accounts linked to Russian entities, although the exact number flagged during the recent sanctions period remains unclear.
The size of the cryptocurrency market was also cited as a factor that undermines the notion of Russia using crypto to evade sanctions. With the Russian central bank holding over $630 billion in reserve assets, surpassing the total market capitalization of all but one digital asset, the feasibility of obscuring large transactions through crypto technology was deemed unlikely. The limited adoption of cryptocurrency, accounting for only 0.3% of global net worth, further diminishes its potential for circumventing sanctions.
Both Binance and Coinbase emphasized that the devaluation of the Russian ruble would be a counterproductive outcome of converting roubles to crypto, weakening Russia’s financial stability and global influence. They suggested that instead of focusing on cryptocurrency, attention should be directed towards traditional financial institutions, oil and gas sectors, or other avenues for effective sanctions enforcement.
In conclusion, the cryptocurrency industry asserts that the transparency and traceability of blockchain technology, coupled with the limited market size of digital assets, mitigate the risk of Russia using crypto to evade sanctions. By maintaining rigorous monitoring and compliance measures, exchanges like Binance and Coinbase are confident in their ability to prevent illicit activities and uphold regulatory standards within the cryptocurrency ecosystem.