Cryptocurrencies Are Failing Russians

Russians who thought they could store their wealth in cryptocurrencies that are supposed to be borderless are facing a bitter surprise. The global response to Russia’s bloody war against Ukraine is sweeping cryptocurrency exchanges into the movement to impose stiff economic sanctions against Russia. Ukraine’s Vice Prime Minister and Minister of Digital Transformation Mykhailo Fedorov has asked crypto-exchanges to block the digital wallet addresses of Russian users to prevent them from using cryptocurrencies. In response, exchanges are curtailing Russian operations, and, in some cases, complying with Ukraine’s request to freeze accounts belonging to Russians. 

Binance, the largest crypto-exchange, is blocking the accounts of Russian clients that are targets of government sanctions. Satoshi Labs, creator of the popular Trezor wallet that allows users to receive, store, and send cryptocurrencies, says, “We are not delivering into Russia.” 

Cryptocurrency firms appear to be shelving their free market, libertarian philosophies for fear of being on the wrong side of history by helping Russian oligarchs preserve their wealth and helping Russia avert economic sanctions as it is conducting a brutal war that is killing hundreds of civilians. They are also hopping to avoid government regulation.

Indeed, cryptocurrency volume has declined dramatically in Russia. Citigroup estimated there were only a relative handful of Bitcoin purchases in Russia each day during the first week of the war. And, Russian oligarchs and companies haven’t appeared to be able to stash funds away in cryptocurrencies.

“We haven’t seen evidence of large-scale sanctions evasion by sanctioned Russian entities,” Chainalysis’ Madeleine Kennedy told Bloomberg News. “If they do attempt to use crypto, it would be very difficult for them to do this undetected at scale.”

This war-time experience is yet the latest evidence that cryptocurrencies, for all their hype, are simply not a failsafe store of value, and certainly no replacement for physical gold.