Is the Russian elite really using cryptocurrency to evade sanctions?


Fearing that Russia’s elite could evade economic sanctions by converting their wealth into cryptocurrency, top Democratic US Senator Elizabeth Warren has introduced a bill in the US Congress to thwart Russian crypto transactions.

Warren warned a Senate committee hearing:

Thus, no one can argue that Russia can escape all sanctions by moving all of its assets into crypto. But for Putin’s oligarchs trying to hide, you know, a billion or two of their wealth, crypto seems like a pretty good option.

The bill does not seek to impose a blanket ban on all Russian cryptocurrency transactions. But it would give the U.S. government the power to prohibit U.S. companies from processing cryptocurrency transactions tied to sanctioned Russian accounts, and apply secondary sanctions to foreign cryptocurrency exchanges doing business with individuals, sanctioned Russian companies or government agencies.

But is it even necessary?

Even though evidence shows that Russian cryptocurrency transactions have increased in number and value over the past month, the scale suggests that the buyers are ordinary Russians looking to hold on to their savings as the value of the ruble declines. collapses.

Read more: During the Cold War, the US and Europe were equally divided over sanctions on Russia – here’s how it happened

Targeting sanctions

The economic sanctions imposed on Russia for invading Ukraine naturally harm the entire Russian economy. Their goal, however, is to hit Putin and the billionaire oligarchs who support his regime where it hurts most.

One of the cornerstones of this strategy is to prevent these people from using or moving their assets by freezing the assets they hold abroad and blocking financial transactions.

But the continued operation of cryptocurrency exchanges in Russia, such as Binance, Yobit and Local Bitcoins, has worried US officials for some time. Even before Russia’s latest invasion of Ukraine, the US Treasury Department warned that cryptocurrencies could undermine the sanctions already imposed on Russia when it annexed Crimea in 2014.

The fall in the value of the ruble

Our first chart below shows why ordinary Russians have good reason to buy cryptocurrency.

Since the invasion of Ukraine on February 24, the value of the ruble against the US dollar has fallen by 40%, from US$1 being 76 rubles to 132 rubles. At the time of publication, US$1 was worth approximately 109 rubles.

The ruble falls off a cliff

Fraction of one US cent per ruble.
Trade economy

More rubles entering Bitcoin

The following graph shows the value of Bitcoin transactions by Russian accounts in rubles.

Bitcoin isn’t the only cryptocurrency Russians could buy, but it’s by far the most traded and trusted of all cryptocurrency offerings, so it’s a useful proxy for the market. These data come from Dance of the coinsa leading Bitcoin statistics and services company.

From the start of the war on Feb. 24 to press time, Bitcoin spending using rubles has increased by 260%.

Bitcoin transaction volumes by Russian accounts in rubles (weekly)


This is an impressive increase, but less impressive if you take into account the devaluation of the ruble. The weekly value of rubles converted into Bitcoin was around $28 million last week, down from around $14 million in mid-February. That’s a 100% increase.

Overall, this is still only a tiny percentage of the money invested in Bitcoin. According to the cryptocurrency data provider Kaiko, every week, between 20 and 40 billion US dollars are spent on Bitcoin. Thus, the Bitcoin-ruble trade is less than 0.14% of the total.

Small transaction size

It is also important to consider the number of accounts and the average transaction size.

According to Glassnode, another cryptocurrency data service, the number of Russian Bitcoin accounts has fallen from 39.9 million to 40.7 million since the February invasion. (Russia’s population is about 144 million.)

The average daily size of each Bitcoin-ruble transaction – based on data from Russia’s largest exchange, Binance – rose to US$580 in mid-February. This compares to the average US transaction value which was US$2,198 at the same time.

Read more: Bitcoin helps both sides in Ukraine conflict, but it won’t undo Russian sanctions

The ability to place large amounts of rubles through crypto exchanges operating in Russia is also severely limited by the relatively low liquidity of Russian crypto trading.

Liquidity refers to the ease with which an asset or security – in this case Bitcoin – can be converted from or into cash without affecting its market price. When a market has more buyers and sellers, it becomes easier to complete a transaction and less of an impact on the exchange rate. With fewer buyers and sellers, it’s more difficult.

A measure of the liquidity of Russian Bitcoin exchanges is the value of orders submitted by buyers and sellers at any given time. This is around US$200,000, compared to US$22 million for US-based crypto exchanges, which is 110 times the volume.

These statistics suggest that anyone wishing to trade large volumes of Bitcoin for the ruble will have a hard time.

Small investors

The evidence therefore indicates that most of the rise in Russian cryptocurrency trading is dominated by small investors.

It is possible that Putin and his cronies use hundreds or thousands of accounts to carry out many small-scale transactions in order to move their fortunes.

But it is more likely that their wealth is primarily invested through shell companies in assets located in places like Monaco, the British Virgin Islands, Ireland or even the U.S. District of Delaware.

Read more: The next Pandora Papers expose is inevitable – unless governments do more on two key reforms

There is little argument against the strategy of using economic sanctions to fight recalcitrant regimes. Apart from direct military intervention, there are few other significant weapons available. But a detailed analysis of any prior sanction proposal is necessary so as not to overestimate its likely effectiveness.


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