Japan along with Western allies are cracking down on cryptocurrency transactions by Russians trying to dodge sanctions imposed not the country. However, it is important to note, by nature it is a constrain since the very framework cryptocurrencies stands on is designed to be decentralized – without government intervention.
Earlier U.S., Japan and European Union members blocked major Russian banks from SWIFT interbank system network as part of sanctions imposed due to invading Ukraine. This triggered Russians to to turn to crypto and conduct foreign transactions, taking advantage of decentralized finance where no single party has control on the network.
The Japan Virtual and Crypto Assets Exchange Association (JVCEA), the industry’s self-policing organization in the country, began discussing new rules Thursday including a ban on transactions involving Russia that are mediated by exchanges.
However, it is important to note, although transactions could constrained through centralized exchanges such as Binance and so on, decentralized exchanges notably remains out intervention.
European Union finance ministers agreed Tuesday to “further investigate actions to avoid any circumvention of the sanctions, especially by the use of crypto assets.” Finance Minister Christian Lindner of Group of Seven president Germany said the bloc is working on the issue as well.
Transactions on Binance, the world’s largest cryptocurrency exchange, involving rubles and Tether ballooned to a record $35 million on Monday, Norwegian firm Arcane Crypto said.
Tether is a stablecoin pegged to the dollar, making it a more reliable store of value than volatile assets like bitcoin.
“These volume increases could indicate that Russians seek stablecoins to get dollar exposure ahead of possible sanctions directed towards Russian crypto traders,” Arcane said. The data also shows a sharp rise in bitcoin-ruble trades.
As for why traders are accepting the weakened Russian currency, the head of a Japanese cryptocurrency exchange speculated that “individuals anticipate appreciation over the long term, while exchanges are using derivatives to hedge against the risk of a fall.”
According to TripleA, roughly 12% of Russian population hold cryptocurrencies and some wealthy Russians have used such channels to move money offshore.
Interestingly, the very medium to control transactions through centralized exchanges is questionable. Since these exchanges do not have any physical headquarters it allows them to bypass government mandates.
“We are not going to unilaterally freeze millions of innocent users’ accounts,” Binance said Monday when asked about its handling of Russian customers.
