The Consequences of Sanctions
Being financially sanctioned by almost all western countries was going to hurt any economy, the Russian system included. The first and most painful result was arguably the massive drop of ruble, the national fiat currency of Russia, which fell by more than 30% in the first few days of the war. To control the situation, the country’s national bank raised base interest rates to above 20%, however, this didn’t seem to stop the already historic down trend.
Additionally, to banks and financial institutions, certain individuals were sanctioned as well, most of them are top Russian billionaires, such as Alisher Usmanov, Gennady Timchenko, and Alexei Mordashov. This meant that these people could not access their funds outside of Russia, be it their reserves, or virtually any other possession, making some of them look for alternatives to move capital around.
How Bitcoin (BTC) and cryptos came into play?
When all the above are put into one equation that seeks to find potential solutions, it’s almost no surprise that cryptocurrencies appear on the other end. Thanks to their fully decentralised, permissionless nature, cryptocurrencies are basically immune to the sanctions of centralised banks and institutions, therefore, many could look at them as the best option amid such economic instability. To support this hypothesis, data indicates that during the days of the ruble’s fall, cryptos exchanged for the Russian fiat currency soared in volume, tapping the record-setting $16M mark right after the breakout.
On another note, since Russia has been also excluded from the SWIFT payment network, leaving the people of russia, businesses and even russian banks unable to send or receive funds. However, as such transacting is among the core functionalities of many cryptocurrencies, like Bitcoin (BTC), Ethereum (ETH), or Solana (SOL), it is possible that they were chosen as the current best possibility to handle the situation by some individuals.
Despite the benefits, some analysts argue that there are certain limitations that prevent cryptocurrencies from permanently and completely overtaking the conventional Russian financial system just yet. The list is long, but the key obstacles include lacklustre liquidity and few ruble-crypto trading pairs, as well as relatively slow transaction speeds that are not optimal for day-to-day, often small, but numerous operations.
Overall, in times of war, economic down trends are almost expected. Russia has seen the most severe of the conflict’s consequences among all countries since the beginning of the war, both on a state, and individual level, making many look for viable alternatives. As of now, cryptocurrencies have proven to be one of the best options for some, but reliably predicting whether their prices’ positive development will last amid the ongoing situation is practically impossible. If you’d also hedge or diversify your position with cryptocurrencies, coinpass is the safest and easiest platform to do so, where buying, selling, and using crypto is simpler than anywhere else.
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