Some EU and US leaders have raised alarm that the sanctions against Russia may not be effective if the country uses cryptocurrencies as a tool for evasion. However, experts are of the opinion that the fear of evasion using cryptocurrencies is unfounded.
According to David Carlisle, who is the director of policy in charge of regulation at Elliptic, there are not enough cryptocurrencies in circulation that Russia would use to circumvent the embargo placed on the country by western powers.
Why Crypto isn’t Preferred As Evasion Tool
Carlisle added that even if there were enough coins, it would still not be in the interest of the country to use them, considering that cryptocurrencies are mostly transparent. He stated that it is possible to follow the trails of crypto transactions, making it easy to flag coins originating from Russia and barring their movement to and from exchanges.
Earlier last week, Hillary Clinton said that cryptocurrency exchanges are not doing enough to make sure that digital assets do not help Russia to minimize the effects of the sanctions. This is despite the fact that there is no evidence that Russia has attempted to use them to ameliorate embargo on the country’s financial institutions, politicians and military.
Crypto Will Have Minimal Impact As Remedy
The opinion of the US Treasury Department is that Russia will actually try to skirt around the sanctions. Oligarchs especially will attempt to use cryptocurrencies according to Max Dilendorf, who is a partner at the Dilendorf Law Firm.
He said that it is doubtful that the use of crypto would be effective since the effect of the sanctions could run into hundreds of millions of USD. He stated that the cryptocurrencies in existence are not enough to ameliorate the impact of an economic downturn of that size.
Michael Parker of Ferrari & Associates, holds a similar view. He said that cryptocurrencies would have little impact on the Russian economy even though it could have marginal use as a remedial measure.
Russia May Not Abandon USD
The prospect of Russia abandoning the USD for crypto has been analyzed by experts who said that there is a slim chance that this would happen. Parker, who was with the enforcement section of U.S. Office of Foreign Assets Control (OFAC) as a director, said that there are drawbacks associated with cryptocurrencies due to its transparency.
This feature makes it easy for sanction enforcement to easily notice when large funds are moved across international borders. Another issue that makes it unsuitable is its volatility, which means that the price of the assets could vary rapidly within a short time.
Close Scrutiny of Russian Wallets
The U.S. Office of Foreign Assets Control (OFAC) is keeping a close watch on wallets even before the sanctions were announced. Wallets suspected to be from Russia and linked to groups that support the Russian government are placed on a watchlist – OFAC’s SDN.
Dilendorf made it clear that blockchain analysis tools already in existence will put a wedge on Russia’s use of centralized exchanges, even though it might still be a tough call stopping sanctioned wallets from using the decentralized exchanges (DEXs). The latter have been known to operate without a centralized authority with mandate to enforce compliance through the use of blockchain analytical tools.
A Major Bitcoin Mining Nation
Another thing going for Russia is its large bitcoin mining industry. The country is the global third largest. With the sanctions biting, small businesses in the country could take advantage of the country’s immense mining potentials to reduce the impact of the sanctions.
Another point that many have overlooked that could be in the interest of Russia is that the sanctions targets are Russia’s financial system, through its biggest banks such as Sberbank. Others affected are the country’s leaders – oligarchs. The ordinary Russians were not sanctioned and may use centralized exchanges.
In effect, ordinary Russians can use cryptocurrencies internationally without the risk of being affected by the sanctions, unlike their government.