Inability to engage with the wider financial sector by enforcing sanctions against Russia may cost the cryptocurrency industry severely.
Financial sanctions intended to separate Russia from the international financial system were among the first harsh actions implemented against Russia in response to its military takeover of Ukraine. On March 12, Russian banks lost access to the global payment and messaging network SWIFT, and private banking companies such as Visa, PayPal were soon after. Nevertheless, because these heavily controlled and widely scrutinised organisations were quick to react to the crisis, concerns rapidly emerged that the Russian state, as well as companies and oligarchs associated with it, might turn to virtual currency exchanges as a source of funds.
The central bank and the Financial Conduct Authority in the U.K. pushed crypto firms to impose restrictions on their platforms, and central banks and regulators throughout the world have incorporated elements of this voice of fear. Japan has confirmed that it will amend its Foreign Exchange and Foreign Trade Act. This seeks to extend its reach to include digital currencies, indicating that exchanges will be compelled to evaluate if their clients are Russian sanction targets.
Nonetheless, several renowned crypto exchanges are still walking a fine line, reluctant to push the threshold drawn by international policymakers and authorities. The top cryptocurrency exchange, as well as Coinbase and Kraken, have all offered support towards Ukrainians’ plight, and some have halted operations.
Digital currencies are facing moral fork in the road
The Ukraine war has revealed an ideological conflict at the core of cryptocurrencies. Cryptocurrencies were created with the aim of implementing a centralised world financial system free of economic manipulation by governments, central banks, and large financial services firms. And, sure, there are other reasons why we should examine decentralisation, not the least of which is the desire for greater visibility, accountability, and safety. But we must not allow our quest for the ultimate kind of financial independence to lead us down a dangerous path where we feel the laws of the country, moral or otherwise, do not belong to us. Hegemonic backing for decentralisation can never explain why it is basically promoting criminal activity.
As an industry, we should evaluate what sort of society we want to create and let our morals drive our actions. Russia’s incursion into Ukraine is an unambiguous breach of international law, and the random shooting of Ukrainian civilians in places like Mariupol does not fit into a moral grey zone.
The danger of further exclusion
The current situation requires a joint response from every business, and presents a great opportunity for the whole crypto industry to join together and take unified action. The crypto sector should do more to demonstrate that it takes the conduct under its roof seriously. This might include blocking Russian and Belarusian users’ accounts and rejecting account opening applications from customers in these nations. In fact, I feel this is our best chance yet to debunk some of the criminal preconceptions that continue to haunt our industry.
Bitcoin’s (BTC) price has risen dramatically in recent years, with increasing integration into the wider financial services industry playing a big role. Inability to read the market on this crisis risks undermining the credibility that the crypto business has built with regulators, policymakers, and customers in recent years. It would send a message to these consumers that it perceives itself as completely detached from their objectives, and even from the real world.
The crypto market is not exceptional, but while the crisis in Ukraine unfolds, individuals who refuse to act swiftly to help the victims will be recognised.
Can regulation be the quick fix?
The Financial Stability Board aims to develop a global regulatory framework for crypto assets, the first significant step in international homogenous guidelines. At the same time, the United States Securities and Exchange Commission aims to regulate alternative trading systems, which would let regulators probe into crypto platforms and even decentralised finance protocols.
As it stands, there is no sign that these regulations will mandate action on economic sanctions, but they will introduce further checks and balances that will lend greater transparency to the money flowing through digital asset exchanges and further dissuade illicit activity. But it’s no secret that regulators are playing catch up with the rapid pace of innovation in the crypto space, and we should not wait for them to catch up to do the right thing. It’s up to us to carry the torch for the reputation of the industry we all love.
