According to experts, sanctions imposed on Russia as a result of the country’s unprovoked invasion of Ukraine could stifle the growth of its multibillion-dollar crypto sector.
In the latest round of sanctions aimed at harming Russia’s economy, US officials targeted Russian bitcoin mining firm BitRiver this week. As per OnzineArticles, the Treasury Department’s Office of Foreign Assets Control is concerned that Russia will monetize its vast oil reserves and other natural resources through power-intensive crypto mining in order to raise funds and avoid Western sanctions.
“This is a strong 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 policy and regulatory affairs at crypto compliance firm Elliptic, in an email.
BitRiver and its subsidiaries will be crippled as a result of the sanctions, which will prevent them from accessing US crypto exchanges or mining equipment. The process of validating new digital currency transactions, known as crypto mining, necessitates the use of specialised computers that consume a lot of energy.
According to Carlisle, the move demonstrates that US officials are “deeply concerned that Russia could leverage its natural resources to conduct crypto mining to evade sanctions,” something Iran and North Korea have been known to do in the past.
The potential use of bitcoin production to circumvent Russian sanctions remains a major concern for global regulators, including the International Monetary Fund.
Russia’s cryptocurrency market
Separately, Binance, the world’s largest cryptocurrency exchange, announced that it is restricting its service to Russian users in response to the EU’s fifth wave of sanctions against Moscow.
Russian Binance accounts with more than 10,000 euros in digital currency will be unable to make deposits or trades and will only be able to withdraw funds, according to the company.
“While these measures may be burdensome for ordinary Russian citizens, Binance must continue to lead the industry in implementing these sanctions,” Binance said in a website update. “We believe that all other major exchanges will soon have to follow the same rules.”
Russia has a sizable cryptocurrency market. According to the Kremlin, Russians own roughly 10 trillion rubles ($124 billion) in digital assets.
It’s unclear where this information comes from, but there’s growing evidence that Russians are turning to cryptocurrency as an alternative to the ruble as the currency falls in value as a result of the country’s economic isolation.
According to CryptoCompare data, ruble-denominated crypto trading volumes reached 111.4 billion rubles ($1.4 billion) in March, a significant increase from previous months. In April, activity slowed, with total month-to-date volume reaching only 19.2 billion rubles. In March, Binance was the most popular exchange for ruble-crypto volume, accounting for 77% of trades.
Third-biggest bitcoin mining hub
Meanwhile, Cambridge University data show that the country is a crypto mining powerhouse.
According to the Cambridge Centre for Alternative Finance, Russia accounted for about 11% of global processing power used for minting new bitcoin units in August 2021, making it the third-largest mining hub after Kazakhstan.
Given that Kazakhstan’s political unrest resulted in internet shutdowns that knocked bitcoinminers offline, Russia’s share of the sector could be even higher now.
However, an exodus of miners from Russia may occur to the “stans” — Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan — where they may “use stranded gas to power their operations,” according to Charles Hayter, CEO of CryptoCompare.