Bitcoin's Practical Use

The price of Bitcoin has quietly jumped almost 20% since the start of this week, as Western allies have ramped up their punitive sanctions on Russia over its invasion of Ukraine. That's despite the moves sapping investors' general appetite for risky and speculative assets—a category that tends to include Bitcoin and other cryptocurrencies.

Many of the sanctions imposed by the U.S. and other countries have focused on limiting Russia’s access to the global financial system. If transactions both to and from Russia are made impossible via traditional banking channels, then Bitcoin could see an increase in demand, the thinking goes.

By its very nature, the cryptocurrency operates outside traditional banking channels. It could be a tool for Russian individuals or companies to evade sanctions. That could explain the thesis behind Bitcoin's counterintuitive rise this week.

Crypto exchanges won't be eager to help prevent users in Russia from taking advantage, Barron's Daren Fonda reports.

A spokesperson for the crypto exchange Kraken pushed back in an email to Daren: “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."

“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.” 

Coinbase Global said it was adding “sanctions screening” to its standard “know your customer protocols," while Gemini said it was "conducting a robust review of customer accounts and activity to identify any exposure to sanctioned parties or regions."

But even if the crypto exchanges were on board, there would still be plenty of avenues for nefarious actors to use cryptocurrencies to evade sanctions.

One is to use a “privacy coin” like Monero, which makes it nearly impossible to track transactions. Another is to use "privacy wallets" like Wasabi or CoinJoin, which makes crypto transactions anonymous by pooling assets.

Daren explains all of that and more here.