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6th March 2022 > > Russian crypto bans.

tl;dr

The threat of a ban on the use of centralised crypto exchanges in Russia might lead to some unwelcome regulation and could drive the further development of decentralised finance.


Market Snap (at time of writing)







For the pedants amongst us (that is mostly just me) who are quite right to ask for clarification of the Market Snap at weekends when the legacy financial infrastructure takes time off, then I hope this is an adequate explanation.


Treasuries don’t trade at the weekend, at least not in any meaningful sense to give us information.


Quoted changes in Wall Street futures in the CCC during the last two days of the week are based on Weekend Wall Street (cash) which is usually only important on Sunday mornings.


Cryptos trade 24/7/365. In the same way that the CCC is here for you.


Glad we have cleared that up.


Coolio, moving on.


Market Wrap

BTC doesn’t have the legs to break $40k to the upside, though I note that shorts are getting a little overleveraged, increasing the risk of a short squeeze higher.


Occasional Series – Curious Cryptos’ website


Just in case you missed it yesterday …


Curious Cryptos’ Commentary – Crypto bans

There is some discussion taking place as to whether crypto transactions emanating from Russia should be banned, in light of the restrictions being placed on Russian involvement in the legacy financial system.


To recap on those restrictions briefly, seven major Russian banks have been cut off from Swift (The Society for Worldwide Interbank Financial Telecommunication), the international body that allows for cross-border transfers of fiat between banks, but that list is expected to grow.


The UK has sanctioned £259bn of Russian bank assets, the US £240bn, and the EU £34bn, compared to Russia’s total foreign reserves estimated at $630bn.


In addition, the UK and the US have closed GBP and USD clearing to Russia, leaving Russian entities access only to EUR clearing, though I suspect the EU will move on this soon.


Sanctioning of individuals is not always particularly effective, though the mooted change to UWO (Unexplained Wealth Orders) to encompass the obfuscation of property ownership through the use of opaque offshore trusts and companies will go a long way to rectifying this problem.


Meanwhile, certain organisations are taking their own measures. Prime examples are Visa and Mastercard who have suspended all operations in Russia, making Russian issued credit cards redundant, which will make life difficult for some. Revolut has banned fiat transfers to or from Russia and Belarus, and presumably within those countries too.


In the crypto world, Mykhailo Fedorov, Ukraine’s minister of digital transformation (if only we had one of those in the UK), made a plea for “all major crypto exchanges to block [wallet] addresses of Russians” and “also to sabotage ordinary users [by freezing their assets].”


Centralised exchanges (CEX) do have this ability for all customers that have been through the KYC (Know Your Customer) process as proof of identity includes proof of address. By and large though, the CEX have ignored this call.


Brian Armstrong, CEO of Coinbase responded with this:


“We believe everyone deserves access to basic financial services unless the law says otherwise. Some ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too.”


This is clearly a stance totally at odds with actions taken by governments and by individual legacy financial firms. On the face of it, Brian appears to be taking the moral high ground, but his cover has been blown by Kraken CEO Jesse Powell:


“Kraken cannot freeze the accounts of our Russian clients without a legal requirement to do so.”


What utter rot.


This is not a good look for the CEX business, and it is likely to bring about additional regulation that could be harmful to the crypto industry.


What this debate overlooks is that there is no practical means of blocking transfers of cryptos between individual wallets, even if they are suspected of being located in Russia or Belarus. There is no practical means of blocking DeFi transactions because – by definition – there is no process of identifying the holder of any particular wallet.


I expect that the CEX will find that they will have to move into line with the legacy financial system, which will encourage crypto holders of the future out of the centralised crypto industry to embrace the opportunities and potential offered by decentralisation.

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