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Bitcoin prices have rebounded in recent days, once again surpassing the $43,000 mark, and coinciding with speculation that sanction-resistant digital assets could provide a way for Russian institutions to circumvent a wave of international financial restrictions now slamming its banks and currency. Just prior to the invasion of Ukraine, Russia laid out a friendly regulatory framework for cryptocurrencies and Bitcoin mining.

Though the idea of Russia officially utilizing Bitcoin as a secure, borderless payment network seems unlikely, it could very well be done. However, that only speaks to the neutrality of decentralized networks, as anyone can gain the same level of access and security on Bitcoin’s blockchain. That includes Ukraine, who has managed to leverage cryptocurrencies to fight back against Russian aggression, as well as everyday Russians who may oppose their regime’s decisions and need a way to opt out of the rapidly-depreciating Ruble.

Related Assets: Bitcoin (BTC-USD), Ethereum (ETH-USD), USD Tether (USDT-USD)

Russia, Ukraine Could Leverage Recent Cryptocurrency Adoption

Russia’s recent invasion of Ukraine has spurred a wave of condemnation and sanctions from major economies like the US, UK, and EU. Russia is set to be mostly restricted from accessing the SWIFT international payment system, leaving many banks effectively disconnected from the global financial system.

In the wake of that news, headlines from outlets like The New York TimesWall Street Journal, and Bloomberg have claimed Bitcoin (BTC) and other digital assets could soon be utilized as a sort of backdoor for Russian institutions to skirt financial sanctions by using decentralized payment networks like Bitcoin.

Just prior to the invasion, Russia and its central bank laid out a framework for regulation of Bitcoin mining and cryptocurrencies’ uses within the financial system. As MRP noted last month, Russian President Vladimir Putin himself urged government officials to reach a consensus on how to regulate cryptocurrencies and support mining in the country. Russia has the third-largest amount of computing power dedicated to Bitcoin mining, trailing Kazakhstan and the US.

On February 21, the finance ministry released a draft proposal that would continue allowing Russians to own cryptocurrencies as an investment but limit their ability to be used as payment for goods and services. A Russian government report estimates that there are more than 12 million cryptocurrency wallets opened by Russian citizens, and the amount of the funds held by Russians is equivalent to roughly $23.9 billion.

It’s likely Russia had anticipated a wave of international sanctions as blowback for any incursion into Ukraine, so the timing of the nation’s move to embrace digital assets may be more than coincidence.

Because a digital asset like Bitcoin operates on a decentralized network that is not hosted or controlled by any centralized server or organization, there is no way for a government or other authority to block or reverse transactions. This level of security does present the opportunity for anyone to use the blockchain as a secure, borderless payment channel, but that is only testament to Bitcoin’s neutrality. All users of the network are granted the same level of access and security.

Russia has spent the last decade accumulating physical gold, likely with the intention of maintaining liquidity in spite of sanctions that might undermine their currency or strangle their access to sovereign debt markets. With that exact scenario now taking place, Russia is likely to lean on 2,300 tonnes of gold reserves as a war chest. It is well understood that gold is simply a store of value that has no sentience or complicity in the motivations of its owner. It’s a yellow rock that has just the right confluence of factors (durability, portability, divisibility, uniformity, limited supply, and acceptability) to represent a strong form of money. Aside from its lack of mass, a feature that makes it more portable and secure, Bitcoin largely follows that same description.

Further, it is worth noting that the Ukrainian government also passed pro-Bitcoin legislation just before the Russian invasion and is now benefitting from significant donations of digital assets.

Following hundreds of thousands of dollars flowing into pro-Ukrainian causes sponsored by NGOs like Come Back Alive, the Ukrainian government set up official cryptocurrency addresses for donations of Bitcoin, Ethereum, and USD Tether (a stablecoin pegged to the US dollar) to support their armed forces. As of yesterday, blockchain analysis…

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