The war in Ukraine continues and the sanctions on Russia are becoming more serious. Still, some think that Russia could use cryptocurrencies to evade these sanctions. Jake Chervinsky, Policy Director at The Blockchain Association, talks more about this on Twitter.
‘Completely unfounded crypto concern’
“Concerns about using crypto to evade sanctions are completely unfounded,” Chervinsky said on Twitter. “Basically, they don’t understand how sanctions work, how crypto markets work, and how Putin is trying to mitigate sanctions.”
Through a Twitter thread, he explains why Putin cannot evade sanctions with cryptocurrencies. The first ruling is very fixated on the US, which is why this article compares it to EU sanctions.
How it works in the US
It starts by explaining a list of sanctions, which we are also familiar with in the EU. “In the US, the Office of Foreign Assets Control (OFAC) designates specific targets for sanctions, such as individuals, companies, and governments,” Chervensky said. “These are defined on the Specially Designated Nationals and Blocked Persons (SDN) list. It is illegal for any person in the US to transact with that person.”
Chervensky adds that it doesn’t matter if someone uses dollars, gold, shells, or bitcoin. “There is no reason to think that the existence of cryptocurrencies will convince any of them to deliberately violate sanctions laws, risking fines or jail time.”
The European variant
In the EU we have a similar list called the Financial Sanctions Database – FSF Platform. It is also illegal in the EU to transact with anyone on this list. You must create a free account to access these individuals, companies and governments. More information can be found on the RVO page.
The RVO reports on this page that ‘assets in the EU, including those of President Putin, the Russian Foreign Minister and members of the Duma, have been frozen’.
SWIFT sanctions have an alternative
As for the SWIFT sanctions, which prevent Russian banks from transacting with foreign peers, Chervinsky does not believe that cryptocurrencies can be a substitute. “SWIFT is a messaging service, but this is not the same as banning Russia from the global financial system,” Chervensky said in his tweet.
The purpose of SWIFT sanctions is to deprive Russia of services offered by other countries. “SWIFT is a service. Russia can no longer use it. That’s the penalty,” he explains. “Some Russian banks can still make transfers across the border, but they can’t use SWIFT for that anymore.”
He says that crypto is not much different. “Can cryptocurrencies mitigate sanctions by providing an alternative to SWIFT? Not really,” says Chervinsky. “If Russia wants an alternative, it is much more likely to use China’s CIPS than a public network it cannot control. No one in the free world would want to do business with them anyway!
Crypto markets do not pay off
According to Chervensky, crypto markets are also too small, too expensive, and too transparent to be useful to the Russian economy. “Crypto markets are sparse to begin with,” meaning there are few active participants on the buy or sell side.
“In addition, the exchange of pairs for rubles is rare. With Russia cut off from the global crypto industry, they are unable to generate enough liquidity to import. Russia also cannot hide its tracks with crypto.”
Russia had not included cryptocurrencies in the sanctions strategy
Chervensky reports that Putin has spent years making Russia “sanctions-proof.” “Crypto is not part of his plan. Putin’s strategy involved diversifying Russia’s reserves into Chinese yuan and gold, shifting trade to Asia and shifting production domestically. Putin could have built crypto infrastructure if he wanted. But he did not. There is no reason to think that he will or that he could now.”
“It is important to understand that the current sanctions are specific, not comprehensive. The goal is not to harm ordinary Russian citizens. We are very happy to see them ditching their rubles for non-Russian digital assets. There is enough liquidity for these citizens, but not for the oligarchs,” Chervinsky said.