Bitcoin Soars as Sanctions Breathe New Life Into Crypto


Russia’s invasion of Ukraine is turning into a geopolitical test for


as a digital currency in a time of crisis. So far, it appears to be passing.

Bitcoin jumped more than 15% on Monday as the Treasury Department announced sanctions against Russia’s central bank and froze some Russian assets. The U.S. measures prohibit Americans from engaging in transactions with Russia’s central bank, its National Wealth Fund, and Ministry of Finance. Other countries have announced similar measures.

Bitcoin slumped below $35,000 last week as Russia invaded Ukraine and countries started to impose sanctions on Russia, triggering a selloff in equities and other risky assets.

But the markets now appear to see the war in Ukraine and sanctions on Russia as breathing new life into crypto.

Ukraine started receiving donations in crypto from supporters aiming to “crowdfund” its defense against Russia. Ukraine’s government and nonprofits supporting its military have raised nearly $23 million in crypto from more than 24,000 donors, according to blockchain analytics firm Elliptic.

Ukrainians, meanwhile, may be turning to stablecoins — tokens designed to maintain a fixed value — as they face restrictions on foreign exchange, bank withdrawals and electronic money transfers imposed by the National Bank of Ukraine. Stablecoins such as USDT and USDC were trading at 10%-13% premiums on Kuna, an exchange that’s popular in Ukraine, on Monday, a sign that buyers in the country are bidding the tokens up over their usual $1 value.

“There are a lot of positive elements to this story,” said Marc LoPresti, managing director of Strategic Funds, a hedge fund manager with crypto funds in its portfolio. “In Turkey, a lot of folks have avoided financial devastation by allocating to decentralized currencies like Bitcoin. You’re seeing that in context of Ukraine and Russia — it’s being used for humanitarian purposes.”

But Bitcoin and other cryptos may also be used by Russian individuals or companies to evade sanctions. Crypto doesn’t operate through traditional banking channels; instead, transactions are processed on decentralized ledgers called blockchains. Individuals access crypto through a centralized exchange and may then transfer their holdings into a digital wallet, which is essentially just an internet address. While wallets have addresses that can be viewed and traced on blockchains, associating a wallet address with an individual isn’t nearly so easy.

That’s a growing concern with Russia. The Biden administration is now asking crypto exchanges to help monitor transactions that may be used by Russian individuals or entities to avoid sanctions, Bloomberg reported on Monday, citing people with direct knowledge of the matter.

However, some exchanges are pushing back against calls to block or freeze all transactions in Russia. Ukraine asked major crypto exchanges to block addresses of Russian users on Sunday.

That prompted a response from Kraken CEO Jesse Powell on Twitter. “I understand the rationale for this request but, despite my deep respect for the Ukrainian people, @krakenfx cannot freeze the accounts of our Russian clients without a legal requirement to do so,” he wrote.

“Freezing access to digital assets of citizens from an entire country does not necessarily punish those who are actually responsible and who may have already prepared for the possibility of blanket sanctions,” a spokesperson for Kraken said in an email to Barron’s.

Other exchanges contacted by Barron’s said they would comply with all U.S. or international sanction requirements.

Coinbase Global

(ticker: COIN) said it was taking several new measures, according to a spokesperson. The company is now conducing “sanctions screening” as part of its standard “know your customer protocols.” It’s also blocking and monitoring internet addresses in prohibited jurisdiction.

The company is also using a “cutting edge blocklist” to thwart transactions from prohibited blockchain addresses identified by the U.S. Office of Foreign Assets Control (OFAC) or otherwise sanctioned, a spokesperson tells Barron’s. “Separately, we proactively use blockchain analytics to monitor wallets to identify additional illicit activity,” the spokesperson said.

Gemini, another trading and custody platform, said it wasn’t operational in Ukraine and Russia. “However, we are conducting a robust review of customer accounts and activity to identify any exposure to sanctioned parties or regions and will take appropriate steps as necessary,” a spokesperson said in a statement.

“We are not going to unilaterally freeze millions of innocent users’ accounts,” Binance said in a statement. “Crypto is meant to provide greater financial freedom for people across the globe. To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists.” 

Still, regulated U.S. and European exchanges are only one point of weakness. Plenty of other foreign exchanges operate in countries that don’t abide by standard KYC or anti-money laundering rules, said Chris DePow, a regulation and compliance expert at Elliptic.

“If we’re talking about a regulated entity operating in the U.S. or western Europe, it’s unlikely that a centralized exchange would be a great candidate to evade sanctions,” he said in an interview.

OFAC, he noted, maintains and publishes lists of sanctioned digital wallets that can be traced. The Financial Action Task Force (FATF), a global anti-money laundering and anti-terrorist financing watchdog group, has set out guidelines for crypto exchanges, similar to those that govern banks.

Yet neither Russia nor Belarus have met all the FATF recommendations for monitoring crypto, said DePow. And while blockchain data is available publicly, there are plenty of ways to avoid being detected.

One technique is to use a “privacy coin” like


The token runs on an encrypted blockchain, making it nearly impossible to track transactions, said DePow. “An exchange might see Monero coming in but won’t be able to see counterparty transactions,” he says. “Privacy coins present a huge risk in that way.”

Privacy wallets like Wasabi, focused on Bitcoin, can also obfuscate transactions. Such wallets act like like “mixers” that pool crypto assets and spin them around to obfuscate their origins. Wasabi said it “creates trustless CoinJoin transactions over the Tor anonymity network,” referring to a method of making Bitcoin transactions anonymous.

CoinJoin describes itself as a “way to mix bitcoins,” allowing “anyone to send Bitcoin and receive fresh Bitcoins … No logs, no surveillance, just complete privacy.”

Some exchanges said they can still track transactions that go through mixers. “We have a lot of experience with mixers in our compliance investigation team,” said Tigran Gambaryan, vice president of global investigations and intelligence at Binance, in an interview.

Sophisticated crypto users may bypass the major exchanges, however, and by using mixers, privacy tokens and anonymous digital wallets, they can still hide their tracks.

“We make associations between bad actors so they don’t break the chain of custody, but privacy coins — that’s the scary part to me,” said DePow. “They’re a very different beast because the analytics capability just isn’t there.”

For now, investors appear to view the positive aspects of a crypto as a reason to buy Bitcoin, Ether, and other tokens. Bitcoin was rising 16.9% to $44,638 on Tuesday, well off its lows in the last week in the mid-$30,000 range, according to CoinDesk.


was rising 12.1% to $2,948. The overall crypto market was up 11.8% to $1.94 trillion, according to CoinMarketCap.

Write to Daren Fonda at


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