As the Russian invasion of Ukraine continues, the pressure on Russia is mounting. Facing serious financial sanctions, the country's economy is crashing and the value of its currency, the Russian ruble, is in free fall.
Now, it appears Russian people are turning to cryptocurrency amid circumstances that have prompted citizens to line up at ATMs and get their money out of banks before it's too late.
The Russian ruble fell to a record low against the U.S. dollar on Monday, plummeting by 30 percent at one point before regaining a third of its losses as the Central Bank of Russia hiked the interest rates from 9.5 percent to 20 percent. High interest rates often lure local currency depositors in a bid to help stop further depreciation, or at least that’s the goal.
Now, there are indications that Russians are converting their rubles into cryptocurrency in a bid to protect the value of their savings. Specifically, much of the buying activity has centered on Tether (USDT), a stablecoin that is pegged 1:1 with the value of the U.S. dollar.
Data from blockchain research firm Arcane Research shared with Motherboard shows that USDT/RUB (Tether/Russian ruble) trading volume on Monday broke a new record with $34.94 million. The previous daily record, $34.31 million, was in May of last year, when Bitcoin's price came crashing down after Elon Musk criticized its environmental footprint, and many investors—not just Russians—switched to stablecoins.
Monday's trading volume in Tether was 519 percent above the average for this year—a period when Russian invasion rumors and possible sanctions were already circulating.
Last week, Bitcoin saw a 214 percent week-over-week growth in BTC/RUB volume, compared to a 46 percent growth in the global volumes in the same period, Arcane analyst Vetle Lunde told Motherboard. “Russian investors are evidently far more active in the market compared to the global investors,” he said.
The ruble-denominated Bitcoin trade recorded $11.4 million in daily volume on Monday—a large amount but a far cry from the stablecoin trade volume in rubles.
“Interestingly, the stablecoin trade volume outpaces that of the BTC/RUB trade volume. While the BTC volume has obviously accelerated, the tendency seems to be that Russian traders prioritize dollar exposure at the moment,” Lunde said.
A key tension emerging with crypto in the Russian invasion of Ukraine centers around official sanctions vs. usage by ordinary citizens. On Monday, major cryptocurrency exchanges including Binance and Coinbase declined a request from the Vice Prime Minister of Ukraine to ban all Russian users, citing the possible harm, while emphasizing that the companies are complying with all official sanctions. This stance was also encouraged by American officials, according to anonymous sources who spoke with Bloomberg. Officials have reportedly urged crypto exchanges “to take a targeted approach focused only on those whom have been sanctioned, in part because of legal concerns," the outlet reported.
Although crypto may give the appearance of being a safe haven for sanctions evasion “allowing Putin and his cronies to evade economic pain,” as Senator Elizabeth Warren put it in a recent tweet, the reality is far different.
Tether Holding Ltd is a centralized company which operates the stablecoin Tether, and it has a history of freezing assets belonging to wallets involved in crimes at the behest of law enforcement, including exploits of decentralized finance (DeFi) protocols where actions are easy to trace on-chain.
Tether told Motherboard it actively monitors the currency to identify attempts to evade sanctions.
"As with all of our customer accounts, Tether conducts constant market monitoring to ensure that there are no irregular movements or measures that might be in contravention of international sanctions,” a Tether spokesperson said in a statement shared with Motherboard. “This is part of Tether's rigorous compliance programme, including onboarding new customers.”
“Tether regularly cooperates with global regulators and law enforcement requests and will impose freezes, as able, on assets pursuant to applicable law. These procedures are in place to protect all Tether users and the wider community,” the spokesperson said.
Russians aren't alone in buying up USDT or Bitcoin amid the crisis. Data from Arcane Research also shows trading volume for both cryptocurrencies denominated in Ukrainian hryvnia spiked around the day of the invasion, but the interest in crypto isn’t as pronounced as in the Russian market. “It makes sense, as Ukrainians don't face the risks of sanctions analogous to the Russians,” Lunde told Motherboard.
Although some other stablecoins like UST (TerraUSD) or MIM (Magic Internet Money) are decentralized, many investors prefer Tether despite its seemingly constant run-ins with regulators because it has high liquidity and therefore it is easy to trade at all times. It’s also the only stablecoin option for ruble-denominated trade on cryptocurrency exchanges like Binance.
Commenting on the request to ban all Russian users, Jesse Powell, CEO of U.S.-based exchange Kraken, said in a tweet that "such a requirement could be imminent," adding the hashtag #NYKNYC, meaning “not your keys, not your coins.”
Even though cryptocurrency appears to be a viable escape hatch for citizens holding a crashing currency for now, that could change. Russians who hold their Tether on the Ethereum network, under their sole control, may still find themselves trapped if they’re deemed persona non grata by governments, and their compliant centralized guardians on the blockchain.