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Wednesday, August 10, 2022

What Does it Mean for Crypto? (Opinon)

The White House, alongside the European Commission, Canada, the United Kingdom, Germany, and Italy, announced in the late hours of Saturday evening that they would be expelling certain Russian banks from the SWIFT payment system.

In a joint statement, the parties wrote that:

“This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.” While also pledging the […] “restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in way that undermine the impact of our sanctions.”

Taking it a step further, Ursula von der Leyen, the current President of the European Commission, revealed that:

“… we will work to prohibit Russian oligarchs from using their financial assets on our markets. Putin embarked on a path aiming to destroy Ukraine. But what he is also doing, in fact, is destroying the future of his own country.”

Let’s unpack.

Russia’s Expulsion from SWIFT

SWIFT is by far the biggest financial messaging system that’s used by more than 11,000 institutions across the globe.

Following Russia’s invasion of Ukraine, the EU and its partners started issuing sanctions against both the country, its president – Vladimir Putin, and certain political representatives.

Excluding Russia from SWIFT intends to cut out the country’s ability to liquidate assets and transfer funds across institutions that are members of the system. The move is made in a bid to isolate and punish the country.

In essence, without SWIFT, banks and their customers would find it much harder, if at all possible, to operate on a global scale.

What Else Is There?

There are plenty of reports suggesting that Russia has been working on a SWIFT alternative for quite some time.

Earlier today, Asia Markets reported that there’s already an alternative that Russia can turn to – CIPS. An acronym for Cross-Border Interbank Payments System, this is China’s international payments solution, and it was first revealed back in 2015.

The report also outlines that there are at least 23 Russian banks that are already connected to CIPS.

Yet, China hasn’t exactly been very decisive in its actions during the conflict, which is hard to decipher. On one end, the country presented itself as a protector of sovereign independence, but on the other, it remains reluctant to denounce Russia’s actions.

Enters Crypto

What does this all mean for cryptocurrencies? Well, this is also challenging to determine or predict.

Price discussions and speculations aside, I’m of the opinion that should Russia decide to turn to crypto as an alternative payments network, that would put tremendous strain on regulators in Western countries.

We see many legislative frameworks across developed countries where cryptocurrencies are put under massive scrutiny. The past year is a vivid example of this as major crypto exchanges rushed to verify their trading volume with aim of avoiding harsh sanctions or becoming straight-up outlaws.

The position of the West on the current conflict in Ukraine is quite clear – they are doing whatever they can to cut off Russia’s financial arms from the rest of the developed world and even instituting personal sanctions. Should Russia turn to crypto, I think it’s quite clear that the regulatory climate will become harsher.

But that’s not necessarily bad news. In fact, many crypto proponents have long pushed for clear regulations. In our podcast with BitMEX CEO – Alex Hoeptner, he said he thinks that regulators are likely to first put crypto in the same regulatory basket as traditional assets, which he believes is wrong. He is also of the belief that rules are needed for the industry to move forward.

But it’s also not necessarily good news. It’s also important to consider a scenario where the West condemns cryptocurrencies as a pro-Russian tool to bypass sanctions.

As I mentioned in the beginning, it’s downright impossible to determine (at least for me) any potential outcomes, but I guess one thing is for sure – we’re in for a lot of uncertainty.

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