Illuminated mining rigs operate inside the racks of the CryptoUniverse cryptocurrency mining farm in Nadvoitsy, Russia.
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Sanctions imposed on Russia over the country’s unprovoked invasion of Ukraine could hamper the growth of its multi-billion dollar crypto sector, experts say.
This week, US officials targeted Russian bitcoin mining firm BitRiver in its latest round of sanctions aimed at hurting Russia’s economy. The Treasury Department’s Office of Foreign Assets Control says it is concerned about the possibility of Russia monetizing its vast reserves of oil and other natural resources for energy-intensive crypto mining to raise funds and circumvent Western sanctions.
“It’s a powerful signal from OFAC that it will use every tool in its arsenal to prevent Russia from evading sanctions through crypto,” said David Carlisle, vice president of political affairs and from crypto compliance firm Elliptic, in an emailed note.
The sanctions will cripple BitRiver and its various subsidiaries, preventing them from accessing US crypto exchanges or mining equipment. Crypto mining – the process of validating new transactions in digital currency – requires specialized computers that consume a lot of energy.
The move shows that US officials are “deeply concerned that Russia could leverage its natural resources to conduct cryptocurrency mining to evade sanctions,” which Iran and North Korea have said. done in the past, Carlisle said.
The potential exploitation of bitcoin production to circumvent Russian sanctions remains a major concern for global regulators, including the International Monetary Fund.
“Crypto mining, while far from replacing assets frozen by Russian sanctions, avoids fiat-to-crypto ‘on-ramps’ and crypto-to-fiat ‘exit-ramps’ when trading currencies centralized virtual virtual machines, thereby bypassing sanction screening,” said Anand Sithian, an attorney at Crowell & Moring and former general counsel in the Criminal Division of the Department of Justice’s Asset Forfeiture and Money Laundering Section.
The Russian crypto market
Separately, Binance, the world’s largest crypto exchange, said it was limiting its service to Russian users in response to the EU’s fifth wave of sanctions against Moscow.
Binance Russian accounts with more than 10,000 euros in digital currency will not be able to make deposits or transactions and will only be able to withdraw funds, the company said.
“While these measures are potentially restrictive for normal Russian citizens, Binance should continue to lead the industry in implementing these sanctions,” Binance said in an update on its website. “We believe that all other major exchanges must soon follow the same rules.”
Russia is home to a huge cryptocurrency market. The Kremlin estimates that Russians own around 10 trillion rubles ($124 billion) in digital assets.
It’s unclear where this data came from, but there’s growing evidence that Russians are turning to crypto as an alternative to the ruble as the currency plummets in response to the country’s economic isolation.
According to data from CryptoCompare, ruble-denominated crypto trading volumes hit 111.4 billion rubles ($1.4 billion) in March, significantly higher than previous months. Activity fell in April, with the total volume since the beginning of the month reaching only 19.2 billion rubles. Binance was the most popular exchange for ruble-to-crypto volume in March, accounting for 77% of trades.
In the six months ending March 2022, ruble-to-crypto trade volume exceeded 420 billion rubles, or more than $5 billion, according to CryptoCompare.
Third largest bitcoin mining center
Meanwhile, figures from the University of Cambridge show that the country is a powerhouse in crypto mining.
In August 2021, Russia accounted for around 11% of the global processing power used to mint new bitcoin units, according to the Cambridge Center for Alternative Finance, making it the third mining hub behind Kazakhstan.
Given that political unrest in Kazakhstan has led to internet shutdowns that have put bitcoin miners offline, there is a chance that Russia’s share in the sector will be even higher now.
However, there could be an exodus of miners from Russia to the “stans” – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan – where they could “use stranded gas to fuel their operations,” Charles Hayter, CEO of CryptoCompare, said. told CNBC.
The Russian government has a “love-hate relationship” with digital assets, Hayter said. While the Russian central bank is pushing to ban the use and mining of cryptocurrencies, President Vladimir Putin wants to regulate them instead.
According to Hayter, the Russian regime and its oligarchs “could see digital assets as a way to finance activities outside of Russia.”