Russia’s access to dollars at risk; Can Bitcoin make a difference?

Russia's access to dollars at risk;  Can Bitcoin make a difference?

The Russian government’s access to funding and dollar transactions was severely compromised on Saturday. This is the first time the threat to pull Russia out of the SWIFT banking communication system has come to fruition as Europe and the United States team up to punish Russia’s incursion into Ukraine this week.

Who would have guessed that the intelligence reports of an impending invasion were true? After years of dropping the ball and going the wrong way, they succeeded: Russia really attacked Ukraine.

This is more than the Kremlin’s usual support for separatists in Donbass, eastern Ukraine. These are armored vehicles, fighter jets, missiles and ground boots belonging to the army under the Russian flag. Judging by this weekend in Washington and Brussels, things are about to get worse in Russia and Ukraine.

What happened?

Some banks (large ones: Sberbank, VTB, others) will be prohibited from using SWIFT. The West will also make it more difficult for the Central Bank of Russia to deploy 500 billion dollars it has international currency reserves to repair the damage caused to the economy by the sanctions.

The White House published the news Saturday.

Crypto enthusiasts wondered if Bitcoin could save Russia. Judging from what we saw unfold in Canada about 10 days ago now, the decentralization aspect of Bitcoin has been significantly undermined by the centralizing powers of government.

In an article published Saturday in The Street, writer Luc Olinga postulated that Bitcoin could be a final financial penalty. I do not agree. Bitcoin will not save Russia. I’m just using Canada as a guide at this point. This could be behind the Bitcoin slide: the use case for BTC as a decentralized currency is dead if centralization can stop it or make it as easy to use as completing the Rubik’s Cube.

Moreover, Russia has been anti-Bitcoin for years. The Central Bank believes it is used by criminals and as a way to get money out of the country. This is also obvious competition for the ruble.

But as Russia is blacklisted from the euro and dollar market, Bitcoin could become a third currency and it remains to be seen how this will be blocked next. If blocked, bitcoin prices will crash into the $20,000s I guess.

“As far as I know, the Russian central bank has a firm position on this issue of Bitcoin: no service of any kind can be rendered on Russian territory unless it concerns Russian ruble, or the future of the digital ruble,” says Sergey Dzhurinskiy, CEO of Warp Consulting and founding member of the Everscale DeFi Alliance. “There has been no suggestion that wider acceptance of Bitcoin or Ether or any other cryptocurrency in Russia is on the way.”

Shortly after Dzhurinskiy’s interview earlier this month, before the launch of the missile strikes on kyiv, the Minister of Finance presented a proposal to allow BTC to be a legal investment, but not legal tender.

(Russians have been investing in Bitcoin for years, although most of the funds that do so are registered overseas. The exchanges are all overseas.)

Note, in January, the Central Bank of Russia asked for a ban of BTC and other cryptocurrencies, seeing them as a threat to the stability of the Russian financial system and a risk to monetary policy and the economic well-being of Russians. The mood changes.

“Russia’s actions make sense for a country that is in the top 10 crypto-economies. This is a pragmatic approach to using Bitcoin more,” says Stepan Sergeev, CEO of and Blockchain Games Studio based in Russia and Ukraine.

According to recent reports from the Russian government, Russians own more than $214 billion worth of cryptocurrencies.

“I’m not sure about this figure, but even if it is reduced by a factor of 10, these are very large funds,” says Sergeev.

The level of public trust in the state government is low in Russia. The level of financial literacy is also low. But the amount of money in the hands of Russians is huge and in this case, if they need money and can’t get dollars, they probably have Bitcoin (although if it’s sanctioned individuals, you may need to have a very good lawyer, or “know a guy” in Dubai).

The beneficiaries of all these transactions will be China’s large, poorly regulated exchanges, which are used by the majority of Russian cryptocurrency owners.

“Russia cannot afford to (think Bitcoin) like China, especially in this context of foreign policy uncertainty,” Sergeev says of the government’s overwhelmingly anti-Bitcoin stance.

One of the main reasons Bitcoin won’t go wild to protect the Russian government from sanctions is that the Kremlin already knows what the sanctions look like, but no government knows what a Bitcoin would look like as a currency reserve or as a as long as average. pay for imported goods from parties who agree to do so. Does China Want Bitcoin? Big corporations dominated by the Communist Party of China probably don’t, but small businesses are another story.

From above, the Russian Central Bank “is uniquely coordinated with Chinese regulators on their position regarding BTC,” says Andrey Diyakonov, CCO of fintech startup Crypterium. “Their proposals are aimed at pushing for a digital ruble or a digital yuan. So their ban on the use of crypto as payment in Russia to date is about not allowing dollar substitutes such as stablecoins more than about bitcoin,” he says.

But from below, Chinese small businesses have become very active in using cryptocurrencies and stablecoins to circumvent overly tight controls on cross-border transactions. For example, three years ago the media noted that many Russian and Chinese companies use the Tether stablecoin for mutual settlements. It’s like a digital dollar. The value is almost identical. At the time, the volume of purchases was estimated at $30 million per day.

I can imagine dollar-pegged stablecoins getting hit with sanctions one way or another.

None of this bodes well for the theme of decentralized finance. The decentralized theme has been a three-legged table since the Canadian government banned the use of BTC wallets to fund a protest movement led by truckers there. Right now, developers and crypto advocates are trying to carve out a fourth leg before central bankers cut off another.

The Russian government is not moving fast on Bitcoin. But Saturday’s announcement from the White House could change that next week.

Bitcoin investors will be watching what this does to the world’s first digital asset, already down more than 50% from fall 2021.

“Unfortunately, the rhetoric from the Russian authorities makes it clear that Bitcoin will not be recognized as a legal means of payment in Russia anytime soon,” said Daniel Monchar, advisor to the Meta DAO Guild, a decentralized autonomous organization that provides a wide range of services. for retail NFT and GameFi investors and blockchain game players. “At best, Russia will allow you to buy bitcoin as an investment asset,” Monchar says.

According to the latest proposals from the Department of Finance, it is clear that there is plans to significantly limit this ability – to set a ceiling of 50,000 rubles (about 800 dollars) for non-qualified retail investors, and about 8,000 dollars for the wealthy. Barely enough to move money if sanctioned. “It’s a ridiculous amount,” Monchar says.

Also this weekend, in an attempt to avoid sanctions, UK football club owner Roman Abramovich gave up control of his team. He is now with a charitable foundation in the hopes that if he gets hit with financial penalties for dealing in dollars and euros, the club will remain solvent.

Perhaps the Russian billionaire still has cryptocurrency holdings in the Blackmoon Financial Group.

Saturday’s sanctions on Russian banks and bans on Russia’s central bank (RCB) to transact dollars from its reserves will require some fancy footwork to get around.

Bitcoin is unlikely to save them, not only because RCB is not compatible with BTC, but because recent examples of centralized powers tearing Bitcoin apart might not make it workable. And if Russia tries this, openly, and it gets blocked, Bitcoin’s crash into the $20,000s would be imminent as investors begin to doubt the use case for decentralization.

Bitcoin has yet to react too violently to the latest Russian sanctions, falling slightly below $40,000 by early Saturday evening.

***The author of this article owns Bitcoin and other cryptocurrencies not mentioned here.***