The U.S. Treasury has announced its intention to sanction Bitcoin miners operating in Russia, extending its international sanctions’ reach towards cryptocurrency. The pressure continues to pile on the Russian state following its invasion of Ukraine as in the third month of conflict, with the international community still looking for ways to strangle Russia’s economic power. Cryptocurrencies stood as one of the last sanction-free bastions. No more.
“By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources,” Under Secretary for Terrorism and Financial Intelligence Brian Nelson said in a press release early Wednesday afternoon.
While currently there’s no actual way for the U.S. or any other centralized entity to enforce cryptocurrency-bound sanctions at an individual wallet level, the U.S. can still apply TeFi (Traditional Finance) sanctions as well as technological import sanctions on entities. That’s exactly what the U.S. Treasury has done, by updating its sanctioned entity list with Russian-bound BitRiver, a company specializing in Bitcoin mining through hydropower. The company employs around 200 employees across three Russian offices.
“Russia has a comparative advantage in crypto mining due to energy resources and a cold climate. However, mining companies rely on imported computer equipment and fiat payments, which makes them vulnerable to sanctions,” continued the statement.
The crackdown aims to reduce Russia’s ability to weather the sanctions storm it’s currently operating under – irrespective of the complexity of such mechanisms. Sanctions, however, are a moving target: the U.S. and its Russia-sanctioning allies have to proactively plug any gaps that would give the country breathing room to finance its war efforts.
“The United States will work to ensure that the sanctions we have imposed, in close coordination with our international partners, degrade the Kremlin’s ability to project power and fund its invasion,” he added.
Cryptocurrency transactions in Russia have been increasing alongside sanctions, signaling a doubling-down on digital assets as a way to bury otherwise locked FIAT funding. According to cryptocurrency data service Glassnode, the number of Russian Bitcoin wallets increased from 39.9 million to 40.7 million since the February invasion. Yet Russia has a population of around 144 million citizens – and the ratio of wallet per user isn’t necessarily 1:1.
However, the amount of rubles being poured into the crypto space has to be tempered with the rubles’ own tragical descent in value. The largest bar in the above graph indicates a weekly crypto transaction value of 250 million rubles for the week of March 13th, increasing two-fold over the same period in February. But with the crash in the Russian currency’s value, that amounted to around $2 million dollars. Hardly enough to fund a military invasion.
At the same time, the average Bitcoin-to-ruble transaction value in Russia reached around $580 in February – a far cry from the US average of $2,198 in the same time frame.
It remains to be seen how deeply the U.S. is willing – and able – to go in the cryptocurrency sanctions space. Of note is that sanctions aren’t as one-sided as one might hope for, as the semiconductor and energy industries have shown following the invasion. Sanctions in the cryptocurrency space, like in any other, may also hurt legitimate businesses – many of them located in the U.S. – if they translate into falling cryptocurrency prices. But judging from recent developments and the value of Russian cryptocurrency transactions, that in itself might not be such a likely risk. Time, as always, will tell.