Cryptocurrency exchange Coinbase has frozen 25,000 Russian linked wallets in a sanctions crackdown.
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The move came as politicians in the US and Europe feared Russia would work around tough economic sanctions by turning to digital currency.
Coinbase has cut Russians suspected of sanction busting from accessing any cryptocurrency held in their wallets and opening new accounts.
In a blog, crypto exchange officials said: “Russian individuals or entities we believe to be engaging in illicit activity, many of which we have identified through our own proactive investigations.”
Details of the accounts were passed to the US government.
The ban involves sanctioned businesses and individuals.
Biden Looks At A US Crypto
US-based Coinbase is one of the few exchanges acting against Russian crypto users.
Meanwhile, US President Joe Biden is ready to strengthen oversight of cryptocurrency. He has signed an executive order urging the Federal Reserve to consider creating a dollar-based central bank digital currency.
Biden also requested the Treasury and other federal agencies to study the impact of cryptocurrency on the US economy and national security.
The president’s chief economic adviser said: “That will help position the US to keep playing a leading role in the innovation and governance of the digital assets ecosystem at home and abroad, in a way that protects consumers, is consistent with our democratic values and advances US global competitiveness.”
However, the US is coming late to the game as Russia and China are already building cryptocurrencies, alongside at least another 100 countries working on or piloting digital currencies.
Will Rubles Ever Come Back?
The White House stressed the order was not in response to worries that Russia could circumvent sanctions by trading cryptocurrency as the value of the ruble plummets.
One US dollar buys 117 rubles as the currency shed another 10 per cent of value and plunged to a new record low.
In stark contrast, Putin planned to push the ruble as a major world currency as recently as 2008, when a US dollar was worth 25 rubles.
The slide followed moves by the central bank to ban Russians from buying US dollars, Euros and Pounds and capped bank withdrawals at $10,000 for the next six months. The bank is trying to stop a run on foreign currency reserves.
“Apparently, the outflow of foreign currency deposits from Russian banks has exceeded the Bank of Russia’s forecasts and put under question the banks’ ability to meet their obligations,” said former central bank and finance industry official Sergey Aleksashenko.
“The biggest mistake monetary authority may make in Russia is to touch private savings — if there was no bank run until now, it’s going to happen.”
Russian Bonds Junked
The ruble and the Russian economy are under extreme stress.
Interest rates have doubled to 20 per cent since the war with Ukraine started. Brokers are banned from selling securities held by foreigners. Exporters must switch 80 per cent of their foreign currency reserves into rubles, and no one in the country can transfer money out of Russia.
The Russian credit rating was slashed to ‘junk’ status by leading international credit agencies, with Fitch Ratings warning that the Kremlin would default on debt repayments.
As the ruble crashes and investors in Russia, Ukraine and further afield look to safeguard their wealth, the big question is if buying gold is better than purchasing cryptocurrency.
Thai Light Touch For Crypto
Elsewhere, the Thai government is demonstrating a light touch on cryptocurrency trading in the country.
New rules allow crypto traders to offset losses against cryptocurrency investment gains and remove a 7 per cent value-added tax on exchange trading from April.
Making the announcement, Finance Minister Arkhom Termpittayapaisith revealed Thailand is about to issue a central bank digital currency.
Last year ended with Thais holding 2 million crypto wallets, compared with 170,000 at the start of the 12 months.
Gold v Bitcoin
Gold is an age-old store of value in times of uncertainty, while bitcoin and other cryptos are new and untested.
Since the war started, the gold price has surged to a near-record $2,001 an ounce, while Bitcoin values have dropped.
Bitcoin has hovered around the $38,000 mark since the war started.
What’s a junk bond?
A bond is an IOU from a corporation or government to recognise money is owed to an investor.
Junk bonds are financial instruments rated as riskier than investment bonds and generally issued with higher interest rates than other bonds.
Rating agencies Standard & Poor’s or Moody’s score the bonds before release. The score reflects the issuer’s ability to repay the debt.
Junk bonds rate BB(+) or lower by S&P or Ba(1) or lower by Moody’s. The top rating is AAA for investment-grade bonds issued by governments.
How do cryptocurrency sanctions work?
One of the underlying principles of cryptocurrency is that a digital token, like Bitcoin or Ethereum, is free from government or central bank regulation. Because digital currencies are built on cross-border peer-to-peer networks, they have no bricks-and-mortar headquarters.
This lack of a geographical base puts them outside of sanctions imposed against Russia.
However, the place where crypto brushes up against regulation is at an exchange.
Exchanges are regulated in the place where they are hosted, so as Coinbase is a US exchange hosted in the US, any orders from Washington must be obeyed.
What is a central bank digital currency (CBDC)
A central bank digital currency is a government-regulated crypto token. For example, the Bank of England is considering the merits of launching a Britcoin for exclusive use in the UK.
CBDCs aim to remove the risks associated with investing in an unregulated cryptocurrency.
What makes gold a store of value?
In the not so distant past, gold was considered the go to investment in times of war and other troubles.
The thinking was small pieces of gold are valuable and easy to move, for instance, for refugees moving across borders. Gold is also universally accepted as a payment method.
Since the start of the war, gold has increased in value from $1,961 an ounce to the current $2,001, although the precious metal peaked at $2,057 earlier in the week.
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