US Treasury adds digital currency rules to Russia sanctions guidance

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Nobody knows whether Russian President Vladimir Putin anticipated the severity of the sanctions his country would face when he decided to invade Ukraine. Nonetheless, they’re now a reality, and to say the sanctions are strict would be an understatement.

So severe are the economic sanctions that the Russian Ruble (RUB) has plunged to 112 to the U.S. Dollar, meaning one Ruble is worth less than a single U.S. cent at the time of writing. The Ruble plunged almost 30% on Monday when forex markets opened, sending shockwaves through the Russian economy. On top of this, bank accounts, yachts, and properties owned by beneficiaries of the Putin regime have been or are in the process of being seized, and hundreds of billions of Russian-owned foreign currency reserves have been frozen by central banks in Europe and the United States.

Now, the U.S. Treasury Department has published new regulations regarding rules for digital currencies and industry participants. It has warned exchanges not to facilitate transactions for individuals or entities on the sanctions list.

The guidance states:

“All property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in…deceptive or structured transactions or dealings to circumvent any United States sanctions, including through the use of digital currencies or assets or the use of physical assets.”

Clearly, the U.S. government is well aware that largely unregulated digital currencies, some of which can be difficult to track internationally, offer a potential way for individuals on the sanctions list to work around them. While the U.S. Treasury regulations only apply to U.S. entities, federal officials are asking exchanges worldwide to comply. In all likelihood, we can expect similar guidance from government departments in the U.K., Europe, and elsewhere in the coming days.

Ukraine asks exchanges to block Russian users, but most say no

I'm asking all major crypto exchanges to block addresses of Russian users.

It's crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.

— Mykhailo Fedorov (@FedorovMykhailo) February 27, 2022

While U.S. entities will swiftly comply with Treasury regulations, most exchanges have denied a request by the Ukrainian government to block Russian IP addresses and freeze both Russian and Belarussian assets. The request came directly from the Ukrainian vice prime minister and minister for digital transformation Mykhailo Fedorov.

While some, such as the Ukrainian-born digital assets platform DMarket, complied with the plea, others such as Binance, Coinbase, and Kraken declined.

Binance stated that it was not going to “unilaterally freeze millions of innocent users’ accounts.” It repeated that “crypto is meant to provide greater financial freedom to people around the world” and that to comply would be to fly in the face of why ‘crypto’ exists. With that said, Binance did state that it would take action against individuals named on the sanctions list and that it will aggressively apply any further sanctions that the international community decides upon.

Kraken’s Jesse Powell stated that while he has a deep respect for the Ukrainian people, the company can not simply block the accounts of ordinary Russian people without a legal requirement to do so. He emphasized that such a legal requirement could be imminent and that Russians should be aware of this.

Exchanges in both Russia and Ukraine reported a huge spike in volume as the sanctions took hold. However, Reuters reported that the majority of the Ruble-denominated trading was into stable coin Tether. Perhaps ordinary Russians simply do not understand the risks involved in holding USDT as its executives undergo DOJ fraud probes and it point-blank refuses to publicly prove its asset holdings.

Could blocking Russian citizens’ wallets be counterproductive?

Many digital currency users took to social media to express their distaste for calls to block ordinary Russians’ wallets. After all, they are victims in this situation too. It’s doubtful any of them expected to wake up to their currency cratering and their savings vanishing before their eyes.

While the logic of the Ukrainian request is easy enough to understand; maximize pain for ordinary Russians and force them into revolt against Putin, some pointed out that such a move is not only against the values of what the industry is supposed to represent but that it could also be counterproductive. This line of thinking goes that Russians selling Rubles for any currency at all, digital or otherwise, puts greater pressure on the Ruble and, by extension, the Russian government.

BTC maxi morals and misunderstandings on full display

Seeing an opportunity to pump their bags in the face of human catastrophe, some BTC maximalists on social media called on the Federal Reserve to print USD and drive the price of BTC so high that Russians couldn’t afford to buy it, while others objected to even Putin’s inner circle being prohibited from using BTC if they wished.

Meanwhile, BTC’s own wannabe Nostradamus, Max Keiser, who spent months claiming that Russia’s imminent invasion of Ukraine was a hoax, deleted around 1,500 tweets. Unfortunately for Max, Twitter user Crypto Whale kept screenshots and uploaded them to the blockchain to live forever.

As usual, we see that as long as there’s an opportunity to make the number go up, BTC maximalists are ready to sell their souls to the highest bidder. Yet, repugnant calls to pump their bags during a war aren’t the only thing on display in BTC-land. As usual, the fundamental misunderstandings of Bitcoin, what it is, and how it works are clearly visible.

Any Russians, Ukrainians, or citizens of anywhere who are thinking of BTC or other digital currencies as a solution right now should know the following:

First, BTC and most other digital currencies are terrible for purchasing everyday items. In a situation like that faced by most ordinary citizens right now, things like food, energy, and other life essentials will be extremely important. Since BTCers have never made a real attempt to make it useful as a currency and have instead promoted the HODL narrative, it’s not widely accepted and is of very little use to those who might buy it. Not to mention, it is also very expensive to transaction in small amounts with.

Second, BTC is not a hedge against inflation. It’s often promoted as one, but it is a highly volatile, highly manipulated digital token with very little real liquidity should there be a run for the exits in an emergency situation. People hoping for a hedge against inflation should probably buy gold, given that it is time-tested and the world showed its preference for it in the immediate aftermath of the sanctions. For most Russians, it’s too late anyway. The major damage happened before most had a chance to even consider their options.

Safe haven: Gold or Bitcoin?

We found out today. pic.twitter.com/Z9smsr8pu6

— David Ingles (@DavidInglesTV) February 24, 2022

Clearly, the world prefers gold to BTC when you know what hits the fan…

Third, BTC and other digital currencies would be the worst possible options for oligarchs and any sort of criminals to use to move money and evade sanctions. Why would anyone want to use a publicly visible ledger to move large amounts of money that would surely draw attention and which they would have to cash out via fiat exchanges that are already looking out for them? This notion that BTC is good for crime and evading government controls is one of the most harmful impediments to true Bitcoin adoption.

And lastly, poking Western governments in the eye and promoting BTC as a means to evade sanctions in a potential war scenario is a sure-fire way to either get BTC banned outright or to aggravate regulators who are in the process of applying existing laws and rules for the governance of digital currencies. Neither is a good idea in the long run.

All told, we are in a difficult situation that could have world-changing implications. Yet, BTC maximalists, in particular, are thinking of nothing but short-term profits from speculation. Suppose Jesse Powell is right, and a legal order does come down to ban ordinary Russians from most exchanges. In that case, many could find themselves trapped in useless digital coins with no way to get access to their funds for the foreseeable future.

Conclusion

We can only hope that this Russia-Ukraine conflict is resolved quickly and with minimal loss of human life and that digital currencies do go on to usher in a new era of financial freedom for all the world’s citizens. However, promoting yet more lies and misunderstandings about BTC to get a quick pump and once again aggravating regulators and governments isn’t going to help achieve any of that. It’s misguided, short-sighted, and wrong.

Watch: U.S. Congressman Patrick McHenry on Blockchain Policy Matters with Bitcoin Association’s Jimmy Nguyen