Russia’s $124 billion crypto market is facing new restrictions from measures to punish the Kremlin for its invasion of Ukraine, amid warnings that digital currencies could eventually help ease the pain of sanctions.
Binance Holdings Ltd,., the world’s largest cryptocurrency exchange, said Thursday it will curb services to Russians with crypto assets exceeding the value of 10,000 euros ($10,885) in response to new European Union restrictions. Separately, the U.S. sanctioned BitRiver, which operates farms that mint about half of all digital currencies generated in Russia.
Switzerland-based BitRiver doesn’t work with state institutions or sanctioned entities, and the U.S. measures were an example of “unfair competition,” founder and Chief Executive Officer Igor Runets said in comments provided by the company’s press service.
The measures could disrupt Russia’s crypto market, which Prime Minister Mikhail Mishustin estimated at 10 trillion rubles ($124 billion) this month, as a raft of other restrictions related to the war in Ukraine have hobbled the country’s biggest banks and curtailed Russian access to financing. The International Monetary Fund said in a report this week that mining digital assets could be used in the future to evade sanctions.
“The sanctions are trying to undermine the Russian crypto-industry, which has not even been formed properly yet,” said Oleg Vyugin, a former top central bank official. “They are trying to ensure cryptocurrency isn’t used to circumvent sanctions.”
Russians have embraced cryptocurrencies despite the fact that they exist in a regulatory gray area in the country. Russia is one of Binance’s top five markets globally with about 10 million total accounts, according to two people familiar with the matter, Bloomberg reported earlier Thursday. It’s estimated that fewer than 50,000 actually hold a value exceeding 10,000 euros, one of the people said.
“Binance’s decision won’t impact Russians too much,” said Ani Aslanyan, an analyst who runs a Telegram channel devoted to cryptocurrencies. “The exchange isn’t used as a wallet by most users.”
The EU this month banned providing high-value crypto asset services to Russia in order to close loopholes in earlier sanctions that could help Russians move money abroad.
Russia could become the second-largest miner globally this year, behind the U.S., Runets said. It trailed only the U.S. and Kazakhstan in 2021 after China banned the practice, according to Cambridge University data published in October.
“The actions of the U.S. Treasury are dictated by competitive considerations in favor of American business,” Runets said, adding that BitRiver plans to maintain investment and double its number of employees in Russia this year.
BitRiver took advantage of cheap power and low temperatures in Siberia and the Russian north to set up the energy-intensive farms that are used to mint cryptocurrencies, selling access to its servers to clients in 15 countries, including Japan, United Arab Emirates and European Union members.
The company stands to benefit from a Finance Ministry push to legalize mining backed by President Vladimir Putin, who said in January Russia had competitive advantages in the area. The plan faces resistance from the central bank, which wants to ban cryptocurrencies as a risk to the financial system.
Central bank First Deputy Governor Ksenia Yudaeva, one of the architects of the proposed ban, was also hit by U.S. sanctions this week.
Despite the regulator’s opposition, momentum is gaining to allow cryptocurrencies. The country’s Federal Tax Service backs a plan by the ruling United Russia party to allow local firms to pay for international goods and services with crypto as sanctions disrupt trade, state-run Tass reported Wednesday, citing the party’s press service.