bne IntelliNews – Russian Currency Chaos Boosts Crypto
Cryptocurrencies seem to have been buoyed in recent weeks by Russian money leaving the country after the invasion of Ukraine on February 24. With the ruble subject to dramatic inflation and increasingly tight currency controls, Russians hoping to hedge or convert their savings have turned to cryptocurrencies instead.
After Russia invaded Ukraine on three different fronts and imposed severe retaliatory sanctions by the West, the value of the ruble began to fall. The Central Bank of Russia (CBR) tried to mitigate the devaluation, but its instruments to do so were limited by sanctions, which included freezing Russian currency reserves abroad.
With large-scale monetary intervention out of the question, the CBR instead resorted to a shocking hike in interest rates to 20% and forced Russian companies to sell 80% of their foreign currency earnings. This failed to slow the rouble’s dramatic fall as Western sanctions on Russian banks saw citizens rush to ATMs to withdraw their money, increasing the amount of hard currency in circulation.
More recently, the CBR limited currency withdrawals until September 9, thereby reducing the liquidity of the ruble.
With Russians flock abroad and trying to convert their savings into more liquid currencies, cryptocurrencies became a way to circumvent ruble conversion limits.
Roman Nekrasov, co-founder of blockchain service ENCRY Foundation, said the number of cryptocurrency transactions in Russia has increased by between three and five times these last weeks.
Alex Kuptsikevich, Senior Market Analyst at FxPro, said: “In the context of a serious crisis in the financial system of the Russian Federation and the restrictions imposed on the circulation of the dollar and the euro, the demand of the population for cryptocurrency has risen sharply. Now it is mainly used for the transfer of capital abroad or for parking in “hard” currency.
Although crypto exchanges generally do not allow the transfer of fiat currency overseas via crypto, peer-to-peer (p2p) platforms provide a loophole, through which users can buy crypto at a other user regardless of the crypto exchange and then transfer it to a crypto wallet. subject to a conversion fee.
“Analysts believe it is unlikely that regulators will be able to effectively prevent such transactions. But the state is helped by crypto-exchanges, which block Russians on their own initiative. There remain the possibilities of p2p platforms, that is to say transfers between individuals. However, there are significant fraud risks associated with such transactions,” Kuptsikevich said.
One cryptocurrency enjoying particular popularity right now is Tether, a cryptocurrency pegged to the US dollar. According to data from Bloomberg, the volume of ruble-Tether transactions on March 5 was worth 2.6 billion rubles, compared to only 300 million rubles at the beginning of February.
But with most crypto exchanges vulnerable to US regulators, Russians may feel uncomfortable starting to limit their access to their crypto assets in line with US sanctions. Reuters reports that the Russians have attempted to liquidate billions of dollars worth of crypto assets in recent days. High-value individuals appear to have converted their crypto holdings into real estate, hard currency, and conventional investments.
Like America, Switzerland has also urged crypto exchanges to limit Russians’ access to their digital currencies. The Swiss Secretariat for Economic Affairs (SECO) said crypto assets were subject to the same sanctions as “normal” Russian assets. Therefore, those sanctioned should also have their crypto assets frozen, the Secretariat said in an emailed statement.
But governments are struggling to limit the exchange of fiat currencies using crypto. Even in China, where cryptocurrencies are banned, this backdoor method still seems to be in effect.
Russia was also considering limiting cryptocurrency before the war started, and the CBR even advocated a complete ban on cryptocurrency mining and trading in January. Still, some commentators are speculating that bitcoin’s liquidity and relative decoupling from Western regulators could help Russia wean itself off the dollar and prepare for the future. overcoming future sanctions.
Russia is the third largest bitcoin miner in the world, and the Russian Ministry of Finance has valued that Russians already hold around 12 million crypto wallets, with a total capacity of around $26.6 billion.