EU Targets Crypto In Its Newest Sanction Package: Where Is Cryptocurrency In Russia Headed?
Russia has been experiencing an onslaught of sanctions from countries like the US, the UK, the EU, Japan, Canada, and New Zealand since its invasion of Ukraine in February 2022. Most of these sanction impositions aim to disrupt Russia’s trade, alienating it from the rest of the world by putting travel restrictions and thereby choking the nation’s economy. One of the most recent sanctions is the complete ban on any crypto transactions between Russia and the EU. The ban forbids European crypto services providers from continuing their work in Russia. According to a statement made by the European Commission (EC), “The existing prohibitions on crypto assets have been tightened by banning all crypto-asset wallets, accounts, or custody services, irrespective of the amount of the wallet”. The current ban on crypto usage is an extension of the previous rule mentioned in the EC's fifth package of restrictive measures against Russia. The EC declared “A prohibition on providing high-value crypto-asset services to Russia” which imposed a cap of 10,000 euros for Russian-EU crypto payments.
Russia’s Stance on Cryptocurrency
Russia became the third largest crypto miner based on the data released by Cambridge University in October 2021. According to the estimates made by the officials in the data study, Russians’ crypto holding range anywhere between $27 billion and $220 billion. With about 10 percent of Russians currently owning cryptocurrency and a steady increase in ownership, the Russian government has increasingly treated the use and circulation of crypto both for inter and intra-state transactions as a chief imperative. The Russian government’s position on crypto has fluctuated from completely decrying its use and calling for a regulatory crackdown to drafting legislation for the national adoption of the technology.
One of the most prominent reasons for the government's fluctuating policyn has been the fear that cryptocurrency undermines the state’s control over digital assets and the economy. Major institutions, particularly the Central Bank of Russia, have been vocal and harsh critics of cryptocurrency, going as far as to call it a pyramid scheme. The Governor of the Bank of Russia Elvira Nabiullina remarks, “The approaches proposed by the government do not yet allow neutralizing the risks that we see, and at the same time they create new threats.” However, despite the prevalence of conflicting views, the government and the central bank have reached a compromise leading to the passing of a bill that regulates cross-border crypto payments. Deputy Minister of Finance of the Russian Federation Alexei Moiseev states, “Now we have a bill agreed upon with the Central Bank. It generally describes how to acquire cryptocurrency, what can be done with it, and how it can or cannot be settled in the first place in cross-border payments”. This comes after Moseiv, in a report, states that “it was impossible for Russia to conduct international trade without the use of bitcoin and cryptocurrencies due to current circumstances concerning sanctions”. Apart from this, the Bank and the Ministry are still at odds with each other with the former not being in favour of the legalisation of crypto-payments and exchanges within the country.
Current Situation in Russia
The announcement of the EC's eighth sanction package against Russia came soon after Moscow legalised cross-border crypto payments. Following this declaration, Russians saw numerous crypto companies and service providers such as LocalBitcoins, Crypto.com, and Blockchain.com ask them to withdraw their funds. While some companies like Dapper Labs and Kraken have completely halted their services in Russia, exchanges like Binance and Garantex are yet to fully implement the restrictions. The head of research and analytics for Unizen, Ajay Dhingra, remarks, “The ban will bring pain to Russian retail and some financial institutions. Given the fact that BTC experienced sharp appreciation in price when the war broke out, European Authorities took note of this loophole in their strategy to curtail and suffocate Russia.” Despite the ban, various other exchanges such as Singapore-registered Bybit, Seychelles-registered Huobi Global, KuCoin, and OKX have refused to implement these restrictions. The crypto economy in Russia thus faces an uncertain future as the war progresses and countries keep imposing sanctions.