The west including the United State’s initial implementation of financial sanctions against Russia due to its aggression in Ukraine has failed to prevent President Vladimir Putin from invading Ukraine. In response United States President Joe Biden has announced additional sanctions against Russian Banks and “corrupt billionaires”.
In order to apply these Sanctions, The United States and allies rely on the banks themselves to enforce the rules. When a person or a business that is under the sanction tries to make a transaction like a withdrawal, transfer or purchase then the bank would block it from going through.
What are Financial Sanctions:
Financial sanctions are actions executed against entities (ex. businesses, corporations, etc.) or individuals in an attempt to discourage or prevent them from unwanted activities as well as to impose influence. The most common forms of financial sanctions are financial sanctions, trade sanctions and travel sanctions. They are usually used by larger countries or coalitions to apply pressure upon smaller or less powerful countries.
Experts warn that cryptocurrencies can be used to evade these types of sanctions as they are decentralized and not controlled by any country or entities. “If the Russians decide, and they are already doing it, I’m sure – to avoid using any currency other than cryptocurrency, they can effectively avoid virtually all of the sanctions,” said Ross S. Delston, an expert on anti-money laundering compliance. Also if a wealthy person or entity became concerned about possible sanctions they could transition their funds into CryptoCurrency to protect it from any outside interference.
There are challenges that come along with using cryptocurrencies for many things however. It may be difficult to purchase every day items when the prices of these currencies fluctuate greatly on a weekly or even daily basis. Also even though cryptocurrencies like Bitcoin may offer some protection, most will still be able to be tracked. In order to use the funds for anything that cannot be purchased with cryptocurrency the individual or entity would have to exchange the digital currency for a standard fiat currency using some kind of off-ramp like a cryptocurrency exchange.
There are other strategies Russia may look to implement as well. The instability caused by the invasion created a spike in oil prices, which greatly benefits Russia as they are a major exporter of oil. If they are unable to sell some of their oil due to the sanctions, they may look to use the native energy to mine for bitcoin, thus creating additional wealth. Iran implemented this strategy to circumvent it’s own financial sanctions.
The situation in Ukraine is still developing. The Bitcoin (BTC) price fell sharply when news of the invasion first broke to $34,600. It has recovered to just over $38,700 at this time.