Nine months into the conflict between Ukraine and Russia, sanctions against the latter have continued to grow aggressively. This time, legislators for the European Union announced that they are introducing a complete ban on all cross-border crypto payments between Russia and its citizens.
To elaborate, a prohibition of all “crypto-asset wallets, accounts, or custody services, irrespective of the amount of the wallet,” has now been initiated by the EU in response to Russia’s continued annexation of Ukrainian land, repeated mobilization of troops within the country and threats of nuclear escalation.
It is worth noting that previous sanctions had limited cryptocurrency payments between Russian to EU wallets to 10,000 euros ($9,700). The new ban seeks to deprive the Kremlin’s military power while curtailing critical components of its industrial complex.
Russian Crypto Users are Under Fire from all Corners
In light of the EU’s previous sanctions, a whole host of cryptocurrency exchanges popular in the region — including LocalBitcoins, Crypto.com, and Blockchain.com — issued emails to their customers telling them to withdraw their funds as soon as possible since they would be unable to make use of their services henceforth.
Considering that as of September 2022, LocalBitcoins accounted for 8% of Russia’s crypto trade volume, the exchange’s most extensive client base by far. Moreover, before the ban, Russian users were responsible for facilitating under 20% of all total BTC trading volumes on the exchange.
Bitfinex, an exchange that had previously spoken out against the growing sanctions being levied against Russian nationals, recently changed its tune, claiming that it may have to amend its policies if “directed by the regulatory authorities” by which they are governed.
Lastly, earlier this month, famous blockchain developer Dapper Labs suspended Russian citizens from accessing its wide array of digital asset services. As a result, users from that side of the world will no longer be able to access the firms’ popular nonfungible token (NFT) marketplace alongside several other crypto products.
Impacts of the Ban
To better understand the situation, Ajay Dhingra, head of research and analytics for cryptocurrency exchange Unizen. Taking a more holistic approach toward the matter, he highlighted that one primary use case of digital assets is to assist citizens of a country at war to protect their savings, adding:
“The ban will bring pain to Russian retail and some financial institutions. Given that BTC experienced sharp appreciation in price when the war broke out, European Authorities took note of this loophole in their strategy to curtail and suffocate Russia.”
Similarly, Przemysław Kral, CEO of Zonda — one of Eastern Europe’s largest exchanges by volume — said that the sanctions, along with the EU’s yet-to-be-finalized Markets in Crypto-Assets regulation, which will be enforced by the EU’s Financial Action Task Force, can potentially redefine the region’s crypto landscape for the foreseeable future, adding:
“As the situation escalates, irrespective of their personal views on crypto regulation, the decision by exchanges to comply with the new EU sanctions is a moral and ethical responsibility that all companies should carefully consider.”
What Happens to the Ruble Pairs held by these Exchanges?
In the past, regulators have taken a heavy hand with exchanges that continue to allow citizens of blacklisted countries to trade on their platforms, which leads to the question: What will exchanges with massive volumes of rubles trading pairs do with these assets? Dhingra said:
“This time, they will be cautious, given the brevity of the situation. The exchanges are now left with no option but to realize major losses on their balance sheets. However, the ban will bring decentralized finance into the spotlight, as it provides a censorship-resistant and easily accessible infrastructure for people living in a geopolitical turmoil.”
Kral noted that it is unclear whether exchanges will be forced to return funds to Russian users, block access, or freeze their accounts until sanctions are lifted. Lastly, he highlighted that Zonda closed all Russian-held accounts during the first round of sanctions back in May, returning all ruble-paired assets to their rightful owners.
Thus, as the war between Ukraine and Russia continues, it will be interesting to see how crypto companies operating in the region adapt to new and shifting geopolitical realities.