War sees soaring Russian demand for cryptocurrencies

MOSCOW

Russian demand for cryptocurrencies is on the rise, as Russians want to protect their savings or transfer them abroad.

According to Binance, the world's largest cryptocurrency exchange market, on Feb. 23, one day before the launch of the war, the volume of Bitcoin (BTC) traded in Russian rubles was about 100 BTC.

On Feb. 24, when the war started, this figure jumped 330% to 430 BTC, and by March 7 it rose to 500 BTC.

Transactions with rubles in Tether, seen as a stable coin, jumped 400% from Feb. 23 and reached $35 million on Feb. 28.

According to the Russian Central Bank estimates, the annual transaction volume of Russians with cryptocurrencies is about $5 billion, while according to experts' forecasts, the total crypto assets owned by Russian citizens are about $200 billion.

After the beginning of the Russia-Ukraine war, many countries, especially EU members and the US, announced sanctions against Russia. There were also financial sanctions, including suspending Visa and Mastercard transactions and partially banning Russia from the SWIFT banking system.

After the sanctions were imposed, the Russian ruble lost value dramatically. While the ruble / US dollar parity before the war was around 75-80, it reached a record level of 132, and currently is around 100.

Legislation, not restrictions

While a total ban on cryptocurrencies was expected before the war, Russia instead has seen moderate statements by authorities in the area.

The country's largest bank, Sberbank, was granted a license to issue and exchange digital financial assets, and Moscow announced that there would be no bans on cryptocurrency mining in the country but on the contrary, legislation for this sector should be developed.

While citizens were prohibited from sending foreign currency abroad due to the capital controls implemented in Russia, no restrictions were imposed on cryptocurrency markets.

Western countries also aim to impose various restrictions in this area, fearing that Russia may circumvent sanctions with cryptocurrencies.

European Central Bank (ECB) head Christine Lagarde has said that cryptocurrencies are being used to circumvent sanctions imposed on Russia.

But Binance said it will not impose a ban on the assets or transactions of citizens in Russia because sanctions are against the “philosophy” of cryptocurrencies.

Aleksey Zubyets, director of the Socio-Economic Research Institute of the Financial University in Moscow, told Anadolu Agency that the demand for the cryptocurrencies in Russia will rise even higher.

Saying the ruble’s depreciation is an important factor in rising demand, he said: "The other reason is that we are currently having problems sending money abroad to buy certain products due to the sanctions.

"In the economic war declared by the US and EU, cryptocurrencies can become a tool to circumvent the embargo."

Mentioning alternative payment systems including ones in Turkiye and China, he underlined that a new international financial payment system is taking shape.

"This will include cryptocurrencies, which will further increase their importance in the Russian market.”

*Writing and contributions by Gokhan Ergocun from Istanbul