While the long-lasting effects of the war in Ukraine on cryptocurrency remain unknown, drastic changes across the crypto industry have been felt since Russia’s invasion began eight days ago.

Calls to clampdown on exchanges operating in Russia are contrasted with those who laud crypto as a means to provide Ukrainians with an alternate form of currency and fast access to financial support from across the globe.

It remains to be seen whether regulators (perhaps especially those in the US) will feel sufficiently vindicated in their long-standing opposition to cryptocurrency given its ability to funnel funds into the hands of bad actors, to push back further on allowing crypto in the market in any mainstream way.

We round up some of the largest updates below.

The clampdown

On Sunday, Ukraine’s Vice Prime Minister and Minister for Digital Transformation Mykhailo Fedorov used Twitter to urge “all major crypto exchanges to block addresses of Russian users.”

“It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.”

By Wednesday, Bruno le Maire, French Finance Minister announced that the European Union will include cryptocurrency in its sanctions against Russia, in attempts to extend and reinforce a global effort to isolate and stifle the Russian financial system.

Speaking to reporters following the meeting, Le Maire stated: “We are taking measures, in particular on cryptocurrencies or crypto assets, which should not be used to circumvent the financial sanctions decided upon by 27 EU countries.”

The UK’s FCA has written to regulated crypto firms in the country, underscoring their responsibilities with respect to enforcing sanctions against Russia. A spokesperson from HM Treasury told City.AM: “We are working with partners to actively monitor these firms. We have made it clear to crypto firms, banks and others that we expect them to focus on their sanction controls and, with our partners, we will be supervising their actions.”

The UK’s cryptocurrency industry body, Crypto UK, noting that it is also in discussions with HM Treasury, stated that while only 34 crypto companies hold a licence from the FCA, another 150 unregulated companies exist in the country and are under no obligation to comply with UK AML rules or sanctions measures. “We would urge unregulated member to take action to ensure your platforms do not become a loophole for sanctioned Russians.”

Crypto responds

Despite the widespread calls to shut down Russian access to crypto markets, there has not been unanimous acceptance of the view from crypto exchanges.

Some of the industry’s largest players including Binance, Kraken, and KuCoin have spoken out against any form of blanket ban on users accounts in Russia.

While Binance is blocking the accounts of specific Russian clients targeted by sanctions, speaking to BBC Radio4 on Wednesday, Binance’s founder and CEO Changpeng Zhao said that the company is “not in a position to sanction, like, populations of people.”

“There are a few hundred individuals that are on the international sanctions list in Russia, mostly politicians, and we follow that very, very strictly. We differentiate between the Russian politicians who start wars and the normal people, many normal Russians do not agree with war.”

Zhao continued: “We are not political, we are against war, but we are here to help the people.”

This line of argument has also been used by Kraken founder Jesse Powell, who raised the recent riots in Canada which saw crypto brought to the fore. He said that without a legal requirement to ban Russian based accounts Kraken would not do so – but that Russians should be aware that such a requirement may be imminent.

Powell tweeted that he would guess “the vast majority of crypto holders on @krakenfx are anti-war. Bitcoin is the embodiment of libertarian values, which strongly favor individualism and human rights. In Canada, crypto was the only financial rail left for those who opposed the regime.”

“The People’s Money is an exit strategy for humans, a weapon for peace, not for war,” Powell’s tweets continued.

His tweets also lashed out at the US, stating that if Kraken were going to “voluntarily freeze financial accounts of resident of countries unjustly attacking and provoking violence around the world, step 1 would be to freeze all US accounts.”

DMarket, a digital assets company founded in Ukraine accepted the request to block Russia’s access, tweeting that it has cut “all relationships with Russia and Belarus due to the invasion of Ukraine. The registration on the platform is prohibited for users from Russia and Belarus; Accounts of previously registered users from these areas are frozen; all assets and skins remain on use accounts, but access to their use is currently limited; Russian Ruble is removed from the platform.”

Fedorov hailed crypto projects including Solana and Everstake which set up a joint initiative to launch a fundraising DAO to support Ukraine. He has also praised NFT trading platform DMarket for freezing Russian and Belarusian accounts, Polkadot for a $5 million donation, and Uniswap for a new ‘Donate to Ukraine’ feature among others. The Ukrainian Minister has also announced that the country will announce NFTs to support Ukrainian Armed Forces.

The US position

On Wednesday , the infamously anti-crypto US Senator Elizabeth Warren and three other Democrat Senators penned a letter to Treasury Secretary Janet Yellen to state their concern that “criminals, rogue states, and other actors may use digital assets and alternative payment platforms as a new means to hide cross-border transactions for nefarious purposes.”

The letter continues that given the need to ensure the efficacy and integrity of the US’ sanctions program against Russia, “we are seeking information on the steps Treasury is taking to enforce sanctions compliance by the cryptocurrency industry.”

Raising the examples of North Korea and Iran’s decision to turn to cryptocurrency to fund its nuclear program and to circumvent sanctions respectively, the Senators warn that Russia could follow a similar path should cryptocurrency remain a viable tool for it to access.

Calling on the Treasury to provide information as to how it intends to enforce the Office of Foreign Assets’ (OFAC) sanctions compliance guidance for the crypto community, especially given that (as the Senators believe) “OFAC has not developed sufficiently strong and effective procedures for enforcement in the cryptocurrency industry.”

The Senators call for a response to the following questions by 23 March 2022:

  1. How does OFAC work with foreign governments and other participants in the international banking community to ensure that cryptocurrency is not used to evade sanctions?
  2. What are the challenges OFAC has faced in applying the October guidance?
  3. Of all sanctions violations documented by OFAC in the virtual currency industry, what percentage of them were self-disclosed?
  4. How has the growth of DeFi arrangements and services affected malign actors’ ability to circumvent sanctions, as well as OFAC’s ability to enforce sanctions?
  5. What additional tools, including legal authorities or funding, might be necessary for OFAC to ensure that cryptocurrency participants are not able to help Russia or other malign actors evade U.S. and multilateral sanctions?

While the regulation of cryptocurrency has experienced a tough reception in the US, the past 12 months have seen exchanges and platforms engage more closely with decision makers in efforts to bring activities more in line with financial frameworks and effectively try to ‘play ball’.

However, given the unconscionable events unfolding in Ukraine at present, and the risk that crypto may play a negative part in the war, we may see the conversation around cryptocurrency fall out of favour in western countries, none more so than the US.

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