Bitcoin surges as Russians seek to avoid sanctions

Cryptocurrencies could be providing oligarchs and banks with an escape route as Russia becomes economically isolated.

A wax of Russian President Vladimir Puin is put into storage at Paris’s Grevin museum on Tuesday. Picture: AFP

Cryptocurrencies could be providing Russian oligarchs and banks with an escape route as the country becomes economically isolated from the rest of the world.

Trading data suggests Russians are increasingly turning to digital assets to avoid Western sanctions that have frozen them out of the traditional financial system.

According to Kaiko, a firm that analyses crypto markets, trading volumes between the Russian rouble and tether, a leading cryptocurrency, hit a record high on Monday. Trading volumes in bitcoin using the Russian currency also reached their highest level since May last Thursday, the day Moscow launched its invasion of Ukraine.

Market watchers said the trading surge was being driven by Russians scrambling to avoid the rapid devaluation of the rouble, which tumbled as much as 30 per cent against the US dollar on Monday after the US, EU and Britain announced they were targeting Russia’s central bank with sanctions.

It traded at 0.008692 against the US dollar on Tuesday night, a new low.

Bitcoin – the world’s most popular digital asset – initially sold off when Russia’s invasion of Ukraine began and dipped below $US35,000, but rallied, trading at about $US44,500 on Tuesday night. It is little wonder, then, that Russians watching the crumbling rouble might view cryptocurrencies as a relatively safe haven for their money.

Yet there is speculation that cryptomarkets are also drawing the attention of sanctioned individuals and institutions who view them as a means of evading the West’s clampdown.

Digital assets exist only as strings of computer code and are decentralised, unlike traditional money controlled by a central bank. Their status as borderless, unregulated currencies could prove attractive to those seeking to put assets out of reach of sanctions.

Crypto experts believe some will try. “You’ll inevitably see Russian actors attempt to launder funds and evade sanctions using cryptocurrency,” said Ari Redbord, the head of legal and government affairs at TRM Labs, a US firm that helps regulators and companies detect illicit crypto trading.

There are precedents. Iran has used bitcoin mining, a computer-driven process of creating new bitcoin, to circumvent sanctions.

North Korea has also sought to sidestep sanctions by stealing cryptocurrency.

Yet widespread sanction evasion by Russia looks unlikely. “There is not a world in which crypto could replace the frozen or blocked funds that Russian financial institutions and the central bank of Russia are dealing with now. The scale is not there,” Mr Redbord said.

David Savage, the head of fin­ancial crime at Stewarts, the British law firm, said cryptomarkets were not an effective method of hiding money, either, because of the ledger technology that formed the foundation of digital assets.

“There are very few types of crypto assets that are truly anonymous; most other things can be traced back,” he said.

In February, the US Department of Justice said it had seized $US3.6bn of bitcoin linked to the 2016 Bitfinex hack and that a couple in New York had been arrested for allegedly conspiring to launder stolen cryptocurrency.

Transferring money into crypto­markets will not help Moscow prop up the economy or fin­ance the Ukraine invasions. “You’ve got to convert to [government-issued] fiat if you want to use it,” Mr Savage said.

THE TIMES