The US government has asked cryptocurrency exchanges to make sure Russian organizations and individuals are not using digital assets to circumvent sanctions imposed on them.
According to a March 1 Bloomberg report citing "people with first-hand knowledge of the matter," the White House National Security Council and the Treasury Department have turned to cryptocurrency trading platforms for assistance in the financial blockade.
The Biden administration has stepped up its efforts to regulate the use of digital assets, and this latest push could give them the reason they were looking to impose further restrictions.
Industry analyst Alex Krüger commented that it would be "terribly bearish" if Russia adopts cryptocurrencies to evade sanctions by stating that "US regulators would be pressured to crush the industry as a matter of national security."
Major exchanges reject the general ban
Citing a White House official, the report added that cryptocurrencies "are not a substitute for the much-used US dollar in Russia," but authorities are aggressively continuing to fight any misuse of digital assets.
US authorities have specifically urged Binance, Coinbase and FTX to take a targeted approach and focus only on those that have been sanctioned, which many appear to do.
Binance, which is outside the jurisdiction aside from its smallest exchange in the United States, has refused to block Russian users, but said it will take steps to identify the accounts of sanctioned individuals. In a statement, the company said, “We have no intention of unilaterally freezing the accounts of millions of innocent users. Cryptography is intended to provide greater financial freedom for people around the world. "
Coinbase said it is only blocking transactions to or from prohibited addresses identified by the Treasury Office for the Control of Foreign Assets. In a move similar to Binance, it will only target sanctioned individuals or organizations.
Kraken CEO Jesse Powell echoed the sentiment on Monday, saying the exchange "cannot freeze our Russian client accounts without a legal requirement to do so."
Johnny Lyu, CEO of KuCoin, also rejected a blanket ban stating that "as a neutral platform, we will not freeze the accounts of any user from any country without a legal requirement."
According to CoinDesk, Ukraine's Ministry of Digital Transformation is sending official letters to eight cryptocurrency exchanges asking them to block Russian users. The ministry is reaching Coinbase, Binance, Huobi, KuCoin, Bybit, Bitcoin Revolution, Gate.io, Whitebit, and the Ukrainian exchange Kuna.
Unlikely Russia will turn to cryptocurrencies
There is not enough liquidity in the crypto markets for a country as big as Russia to exploit as an alternative to fiat. Therefore, Russia is unlikely to fully adopt digital assets to avoid sanctions, according to some industry observers.
However, markets rebounded strongly during Tuesday morning's Asian trading session with a 12%, or $ 225 billion, increase in total market capitalization over the past 24 hours.