Putin backed into corner as Russian leader running out of options to save battered economy

Ukraine: Security forces search for Russian agents

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Crypto has previously been used by countries such as Iran and North Korea to evade economic restrictions. As confidence in the ruble has fallen Bitcoin has soared with many hoping it may prove a safe haven as the Russian economy drifts closer towards hyperinflation. Bitcoin has risen around 14 percent since sanctions were imposed, breaking back past the $40,000 mark. Victoria Scholar, Head of Investment at interactive investor, commented: “With the rouble slumping almost 30 percent this week to fresh all-time lows and with the West imposing sanctions on Russia’s central bank, cryptos, which operate outside the traditional financial system have seen a surge in demand as Russians look for ways to circumvent economic restrictions and the sharp devaluation of the ruble.

“Previous equity market sell-offs have been correlated with a drop in the crypto complex.

“However this time, things look different with crypto attempting to break away from traditional assets and prove its value in times of military conflict.”

Russia has previously shown a mixed outlook towards crypto with the Bank of Russia describing it as carrying “significant risks for the economy.”

President Putin however has appeared more open to its prospects though, heralding Russia’s “certain competitive advantages here.”

Russia’s competitive advantage stems from its abundant energy production which is necessary to power the highly energy intensive mining of cryptocurrencies.

According to Putin the country also has a surplus of well-trained personnel.

Currently Russia is severely cut off financially with its ability to use its foreign reserves, consisting of currencies such as the dollar and the euro, mostly frozen.

Being decentralised from traditional banks and institutions cryptocurrencies potentially provide a workaround the sanctions, however experts have predicted they may fail to be a sufficient substitute.

Ari Redbord, head of legal and government affairs at TRM Labs, commented: “Russia needs a lot more access to funds in order to replace what is being lost here in terms of sanctions, and also fund what is becoming a more and more costly war.

“In this day and age, you still cannot fund a war or buy weapons – for the most part – with cryptocurrency.”

Marcus Sotiriou, Analyst at digital asset broker GlobalBlock, said he was “sceptical about the feasibility” of using cryptocurrency.

Unlike countries such as Iran and North Korea, Russia has much bigger transaction volumes to cover and has been more closely integrated with global financial systems for much longer.

Mr Sotiriou explained: “There is not enough global liquidity to support the $50 (£37.28)billion in foreign exchange transaction volume that Russia settles daily – Bitcoin’s daily volume is typically around $20-50 (£14.91-37.28) billion.”

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Cryptocurrencies may also prove more detectable than hoped if Russia does try to funnel money via this route at any scale.

“On a blockchain ledger, every transaction, as well as the address associated, is viewable to the public” Mr Sotiriou added.

“While the address is anonymous, the volume is transparent which could be flagged as suspicious.”

So far major crypto exchanges such as Coinbase, Binance and Kraken have refused to enact a blanket ban on Russian users despite requests from Ukraine.

Binance however said it would block accounts for any individuals on the sanction list.

The firm has also committed £7.46million ($10million) to organisations carrying out humanitarian work in Ukraine with a crowdfunding site based in cryptocurrency also launched.

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