Are Russian authorities really using digital currencies to circumvent sanctions?



Some time ago, Elizabeth Warren, one of the most famous senators from the US Democrats, introduced in the US Congress a bill to prevent transactions in Russian digital currency, fearing that Russian authorities will escape economic sanctions by turning their wealth into digital currency. But is Warren’s concern really true?

According to Cryptonews, Warren warned during a Senate hearing:

So no one can say that Russia is able to circumvent sanctions by transferring all its assets to digital currencies; But for Putin’s drug bosses, who want to hide $ 1 billion or $ 2 billion in wealth, digital currency seems like a great option.

The bill does not aim to impose a general ban on all transactions in Russian digital currency; But this allows the US government to ban US companies from processing digital currency transactions linked to Russian-sanctioned accounts and to impose secondary sanctions on foreign digital currency exchanges that trade in Russian-sanctioned individuals, companies or organizations. .

But one question! Are these measures necessary?

Although evidence shows that the number and value of transactions in Russian digital currency increased last month, the data also shows that buyers of digital currency are in fact ordinary Russians trying to keep their savings after the fall of the ruble.

Targeted sanctions ?!

Economic sanctions against Russia over the invasion of Ukraine will naturally harm the entire Russian economy. However, the sanctions are aimed at hurting Putin and the drug lords around him who support the Russian government. Where most of this damage should go.

The cornerstone of this strategy is to prevent these people from using or transferring their wealth by freezing assets invested by Russian officials abroad and freezing financial transactions.

Read also: How can sanctions encourage Russia to extract more bitcoins?

But for some time, US officials have been worried about the continuing work of digital currency exchanges in Russia, such as Binance, Yobit and Local Bitcoins. Even before Russia’s recent invasion of Ukraine, the US Treasury Department warned that digital currencies could ease sanctions previously imposed on Russia over its 2014 annexation of Crimea.

Weakening of the ruble

The chart below shows why ordinary Russians tend to buy digital currencies. Following the invasion of Ukraine on February 24, the ruble fell 40 percent against the US dollar. Before the attack, the dollar was worth about 76 rubles, and after the attack, the same dollar traded at 132 rubles. Of course, at the time of writing, a dollar costs about 100 rubles.

Are Russian authorities really using digital currencies to circumvent sanctions?
The value of every US cent against the Russian ruble on a monthly basis

Increase the conversion of rubles into bitcoins

The following chart shows the value of bitcoin transactions at Russian addresses. Although bitcoin is not the only digital currency that can be bought by Russians, it is the most traded and reliable digital currency. Therefore, he can play the role of an intermediary for the conversion of rubles. This data was obtained from Coin Dance.

Are Russian authorities really using digital currencies to circumvent sanctions?
Volume of bitcoin transactions on Russian accounts in rubles on a weekly basis

From the start of the war on February 24 until the publication of this report, purchases of bitcoins with the ruble increased by 260 percent.

At first glance, this increase of 260% seems very significant, but when we take into account the devaluation of the ruble, this figure will be less noticeable. The weekly value of rubles converted into bitcoins was about $ 28 million last week and about $ 14 million in mid-February. This means that this time the increase rate decreases and increases to 100%.

Globally, this amount of purchases of bitcoins with Russian rubles is insignificant. According to Kaiko, between $ 20 billion and $ 40 billion are spent each week to buy bitcoins. Thus, the bitcoin ruble transaction represents less than 0.14% of all bitcoin transactions.

Small transactions

Another important point is the number of accounts and the average size of transactions. According to Glassnode, another digital currency data analysis service, the number of Russian bitcoin accounts has risen from 39.9 million to 40.7 million since the invasion of Ukraine. (Russia’s population is about 144 million.)

The average daily amount of each bitcoin ruble transaction has risen to $ 580, according to Bainance, which is also the largest active exchange in Russia. By comparison, the average transaction in the United States is currently $ 2,198.

The transfer of large sums from rubles to digital currency exchanges operating in Russia is severely limited due to their relatively low liquidity.

Liquidity refers to the ease of converting an asset or securities (here bitcoin) “from” or “into” cash, without the price having a significant effect on the transaction. When the market has more buyers and sellers, the transaction becomes easier and the exchange rate is less affected. With fewer buyers and sellers, the deal will be more difficult. The criterion for liquidity on Russian bitcoin exchanges is the value of orders sent by buyers and sellers at any given time. That’s about $ 200,000, compared to $ 22 million in digital currency exchanges in the United States. (About 110 times more)

These statistics show that if someone wants to trade a large amount of bitcoins against the ruble, he will face many problems.

Short-term investors

Thus, the evidence shows that most digital currency transactions in Russia are run by small investors.

Although Putin and his colleagues may have used hundreds or thousands of small accounts to make many small-scale transactions to transfer their wealth, it is likely that their wealth was largely through sham companies in places like Monaco and the British Virgin Islands. , Ireland or even the county of Delaware in the United States.

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