Share this article
Russian Sanctions May Test Crypto's Proposition
Parts of Russia are about to be cut off of the global financial system.
By Nikhilesh De
Updated May 11, 2023, 3:42 p.m. Published Mar 1, 2022, 6:57 p.m.
Make us preferred on Google
A coalition of countries including the U.S. and European Union want to freeze the Russian central bank’s international reserves and lock (some) Russian banks out of the global financial system.
You’re reading State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. Click here to sign up for future editions.
STORY CONTINUES BELOW
New financial order
The narrative
Russia’s invasion of Ukraine has set the stage for a sea change in how we perceive the global financial system. This is what the crypto industry has been waiting for.
Why it matters
The present set of geopolitical and financial factors might make this crypto’s moment. Certainly it’s a test of cryptocurrency’s proposition value of being a stateless means of exchange. Is the industry ready?
Breaking it down
Russia invaded Ukraine last week. After massing 200,000 soldiers along its border with Ukraine, one of the world’s largest nations launched cruise missiles, aircraft, warships and land convoys into its neighbor.
In response, a coalition of nations including the U.S., U.K., European Union, Canada, Japan, South Korea and several others have pledged to lock Russia’s largest banks out of the SWIFT global financial system, seize Russian assets and otherwise make it difficult for Russia’s economy to continue as is.
This has led some to say this might be crypto’s moment.
And you know what? I think it might be. Ukraine suspended electronic money transfers and its ATMs are running out of cash but the country has received millions in crypto fundraising – both the government and charity/NGO groups – that are being used to purchase critical goods.
Russian oligarchs or individuals might be turning to crypto as a flight to safety after the Russian ruble crashed.
As I stated last week, I do not mean to minimize the loss of life or scale of destruction in any way. This is a tragic and unnecessary war launched by a would-be emperor.
(For what it’s worth, I don’t think I necessarily agree with the idea that crypto will be the tool for officials to evade sanctions.)
That being said, all of the conversation surrounding this so far sounds like it’s an asset or a tool, rather than a currency existing within its own circular economy. My view is basically unchanged from last week’s newsletter, but we’re not yet seeing a scenario where bitcoin (or any other cryptocurrency) is being used solely as a means of exchange.
Russia’s response to these sanctions so far seems to have been to double down, which in turn will likely lead to further economic sanctions.
Today, the EU’s European Commission is supposed to be meeting to determine how to remove Russia’s largest banks from the SWIFT interbank messaging system.
Bank of Russia chief Elvira Nabiullina claims Russia has a SWIFT alternative for domestic payments, and is inviting international banks to also participate. Whether it’s successful will depend entirely on whether these other banks want to risk being cut out of SWIFT themselves and whether they see the ruble as a viable alternative to the dollar as a world reserve currency.
So far, this seems unlikely.
I imagine we’ll have more to say on this in the coming week. For now, I want to refer you all to the coverage CoinDesk has put out over the past eight days, which really covers the wide range of issues at play here. Some selected stories:
- Ruble-Denominated Bitcoin Volume Surges to 9-Month High
- Ukraine Asks Binance, Coinbase, 6 Other Crypto Exchanges to Block Russian Users
- Ukraine Lawyer Says They Have Received Numerous Russian Wallet Addresses for Crypto 'Blacklist'
- Ukrainian Government Receives Nearly $10M in Crypto Donations After Russian Invasion
- Tether's USDT Stablecoin Well Over $1 on Ukrainian Crypto Exchange
- No, Crypto Won't 'Fix This' for Russia (disclosure: I wrote this one)
On another note, there is a continuing, massive humanitarian crisis in Ukraine right now. For those interested in donating to relief efforts, this resource has been shared by a research fellow and former reporter.
Biden’s rule
Changing of the guard
U.S. President Joe Biden will speak on the economy this evening during his first State of the Union Address, although he’s also expected to speak to the ongoing effort to have Russia back down. Federal Reserve Chair Pro Tempore Jerome Powell will also be speaking to the House Financial Services Committee tomorrow at 10:00 a.m. Eastern and the Senate Banking Committee Thursday at 10:00 a.m.
Elsewhere:
- US Justice Department Indicts BitConnect Founder: The U.S. Department of Justice indicted BitConnect founder Satish Kumbhani on fraud charges for his role in the alleged global Ponzi scheme. It might take a while to bring him to trial however – he appears to be MIA.
- Accused Bitfinex Launderer Heather Morgan Might Be Offered a Plea Deal: Heather Morgan, one of the two individuals charged with laundering the funds from the Bitfinex hack, may receive a plea deal, prosecutors told a magistrate judge on Monday.
- They Were Jailed for Hacking an Exchange. Blockchain Data Cleared Them: José Manuel Osorio Mendoza and Kelvin Jonathan Diaz, two Vezuelan software developers, were arrested in 2020 on suspicion they were behind the theft of $1 million in bitcoin from a local crypto exchange. Blockchain analytics firm CipherBlade used data from the public ledger to prove they were innocent.
Outside CoinDesk:
- (The New York Times) Scientists are using ultrasounds to bring endangered species back, according to the New York Times.
- (IPCC) The United Nations Intergovernmental Panel on Climate Change is out. It found that some of climate change’s effects might be irreversible at this point but all hope is not lost yet. The Washington Post has a solid summary of some of the key takeaways.
Zelensky has achieved what was previously thought to be impossible: a modern comedian developing a huge following without a podcast.
— Frank Conniff (@FrankConniff) February 27, 2022
If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at [email protected] or find me on Twitter @nikhileshde.
You can also join the group conversation on Telegram.
See ya’ll next week!
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
More For You
Pudgy Penguins is building a multi-vertical consumer IP platform — combining phygital products, games, NFTs and PENGU to monetize culture at scale.
What to know:
Pudgy Penguins is emerging as one of the strongest NFT-native brands of this cycle, shifting from speculative “digital luxury goods” into a multi-vertical consumer IP platform. Its strategy is to acquire users through mainstream channels first; toys, retail partnerships and viral media, then onboard them into Web3 through games, NFTs and the PENGU token.
The ecosystem now spans phygital products (> $13M retail sales and >1M units sold), games and experiences (Pudgy Party surpassed 500k downloads in two weeks), and a widely distributed token (airdropped to 6M+ wallets). While the market is currently pricing Pudgy at a premium relative to traditional IP peers, sustained success depends on execution across retail expansion, gaming adoption and deeper token utility.
More For You
WH advisor Patrick Witt: Davos 2026 was ‘turning point’ for global crypto normalization
White House crypto advisor Patrick Witt said stablecoins are the “gateway drug” for global finance and that Washington is racing to deliver regulatory clarity.
What to know:
The Context: The Executive Director of the President’s Council for Advisors for Digital Assets sat down for an interview with CoinDesk where he said the recent World Economic Forum in Davos served as a stage for the Trump administration to signal its commitment to normalizing digital assets as a permanent asset class. He said:
- The administration aims to strike a balance between traditional financial incumbents and new crypto entrants through a "symbiosis" where they can coexist and compete.
- Consumers benefit from this competition, positioning the current administration as firmly on the side of technological innovation.
- The President renewed a pledge at the event to establish the United States as the undisputed "crypto capital of the world".
Latest Developments: Regulatory movement is accelerating in Washington with key committee markups scheduled for major digital asset legislation.
- The Senate Agriculture Committee is set to mark up its portion of the market structure bill on Thursday, January 29th at 10:30 AM.
- The Senate Banking Committee has postponed its markup, requiring further mediation on issues like stablecoin rewards and ethics.
- Witt expressed confidence that despite these delays, the legislation will eventually be reconciled and brought to the Senate floor.
Reading Between the Lines: Stablecoins are acting as a "gateway drug" for global business leaders who are beginning to grasp the technology's potential—and its threat.
- Witt observed a cycle where traditional players move from a lack of understanding to fear, and finally to incorporating crypto into their own product offerings.
- While some Senate Republicans worry about stablecoins causing deposit flight from community banks, Witt believes a "smooth glide path" into these future technologies is possible with patience and cooperation.
- “Consumers win when there’s choice,” he said, while also acknowledging concerns from Senate Republicans about community banks and financial stability. The administration, he suggested, sees convergence between crypto and traditional finance as inevitable but wants the transition to be smooth rather than destabilizing to all parties.
- U.S. regulators intend to lead the global regulatory conversation, even if the domestic legislative process results in imperfect "directionally accurate" rules.
What Comes Next: Once the primary market structure bill passes, the administration plans to pivot toward a major crypto tax package.
- Witt suggested there is still a window of opportunity to pass additional digital asset legislation this year before midterms dominate the congressional calendar.
- The administration is also monitoring "developing situations" regarding digital assets potentially seized in national security actions abroad, such as in Venezuela.
- Finally, Witt declined to specifically comment on speculation that Venezuelan enforcement actions may have involved seized digital assets, citing national security sensitivities and an evolving situation, but did add, “There’s a number of folks in the national security apparatus engaged,” in regards to how the Maduro regime was financed.
Top Stories
