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Cryptocurrencies and sanctions are in the spotlight


The role of cryptocurrencies like bitcoin has been an important highlight in the process Russia Invades Ukraine and the ensuing sanctions and financial market turmoil.

And it has raised three big questions about how it is being used and what its future holds.

Can Cryptocurrencies Be Used to Avoid Sanctions?

After the invasion of Ukraine, Russia was subjected to a number of economic sanctions aimed at cutting the country off from the global financial system.

Important Russian figures and financial institutions have been placed on a US sanctions list that effectively prohibits American companies from doing business with them. Meanwhile, the United States, its European allies and Canada have removed key Russian banks from a interbank messaging system called SWIFTthis prevents them from accessing global financial markets.

Sanctions have causing the Russian ruble to plunge.

This has led to a debate over whether cryptocurrencies, particularly bitcoin, could be a way for those on the sanctions list to evade the restrictions.

This is because bitcoin and other digital currencies are typically decentralized, meaning they are not issued or controlled by a central entity like a central bank. When cryptocurrency is sent to other users, it does not go through the traditional path of the financial pipeline system.

But there are some challenges.

First, blockchain, the technology that underpins bitcoin, is a publicly operating ledger. Therefore, it is possible to track the movement of money from one account to another quite easily. This doesn’t make it a good tool for avoiding sanctions.

“The biggest misconception about cryptocurrency is still that it is untraceable and mainly used for nefarious purposes, this couldn’t be further from the truth,” said Vijay Ayyar, vice president of development corporate and international at crypto exchange Luno, told CNBC.

Meanwhile, there is not enough liquidity for Russian oligarchs and companies to move their money.

“Liquidity in crypto is still a small part of the global currency market, and so moving large amounts of money in crypto is very difficult,” Ayyar said.

Cryptocurrency exchanges will also be on high alert.

Charles Hayter, CEO of data firm CryptoCompare, told CNBC: “Exchanges that operate with robust processes and codes of conduct will no doubt be in doubt at this time for funds. of illegitimate origin”.

On Thursday, Brian Armstrong, CEO of cryptocurrency exchange and wallet Coinbase, backed up many of these points in one chain. He said that every US business is subject to the law.

“It doesn’t matter if your company handles dollars, cryptocurrencies, gold, real estate, or even non-financial assets,” Armstrong said. Sanction laws apply to all US residents and businesses. “.

“So it would be a mistake to think that crypto businesses like Coinbase won’t follow the law. Of course we will. This is why we screen people who sign up for our services. we rely on a global watch list and block transactions from IP addresses that may belong to sanctioned individuals or entities, just like any regulated financial services business any other.”

However, there has been a spike in trading volume from the ruble to bitcoin and to tether, a so-called stablecoin pegged to the US dollar, since Russia’s attack on Ukraine, according to CryptoCompare . Hayter said it was a “flight to the dollar in any way possible where crypto is but another path to wealth preservation,” as the ruble has plunged.

Coinbase’s Armstrong said “some ordinary Russians are using crypto as a lifeline when their coin has collapsed.”

Earlier this week, lawmakers including Senator Elizabeth Warren urged the Treasury Department to ensure that it can ensure crypto companies comply with sanctions against Russia. A US government official said it is unlikely that Russia will be able to evade sanctions using cryptocurrencies.

“The scale it takes for the Russian state to bypass all financial sanctions by the United States and its partners will almost certainly be,” said Carol House, director of cybersecurity at the National Security Council. making cryptocurrencies an ineffective primary instrument for the state.” webinar on Wednesday, Reuters reported.

Will Bitcoin Finally Become ‘Digital Gold’?

Some experts disagree.

“We have read through a number of different publications that BTC is regaining its status as a safe haven. We completely disagree with this view,” said Lux ​​Thiagarajah, head of trading and management. account manager at crypto financial services firm BCB Group, said in a note on Thursday.

“A safe haven is an asset that retains its value during times of market turmoil. Cryptocurrencies have sold out aggressively because it is clear that the Fed (US Federal Reserve) will raise interest rates faster. predicted, leading to a sell-off in stocks. This is not the definition of a safe haven.”

Luno’s Ayyar said last week that bitcoin has “fallen down quite a bit against equities and gold, which is a positive sign around its use-case as a safe haven.” He added that bitcoin will continue to mature, taking away market share from gold, but that narrative “could still take longer to come into play.”

Has blockchain technology proven its utility?

Cryptocurrency proponents often tout basic blockchain as a way to have more efficient and trackable transactions. One of the reasons is that there is no intermediary to transfer money, unlike traditional financial transactions.

But many cryptocurrencies still suffer from high fees and slow transaction speeds. They don’t necessarily see mass adoption for things like payments.

However, during the war, Ukraine begins to accept donations via cryptocurrency to fund his army, among other things. Ukraine has raised more than $50 million through cryptocurrency, according to analytics firm Elliptic.

Receiving donations through traditional banking methods can be difficult due to the high costs of sending money abroad. It can also take a long time for Ukraine to receive the money.

That’s where crypto has an edge, according to Garrick Hileman, visiting fellow at the London School of Economics.

“When critical infrastructure is lost or there are concerns about how quickly something can get through the traditional banking system, as long as you have internet and computing equipment you can That’s one of the promises of cryptocurrencies,” Hileman said.

Because transactions are on a public ledger, Hileman says, to some extent, you can see where the money you send is going and how it’s deployed once it’s received.

“Some of the early cryptocurrency value propositions are being validated,” he added.



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