The crisis in Ukraine has been a turning point for the entire crypto market. For one, it has been the first major geopolitical crisis to occur since cryptocurrencies actually broke into the limelight. Just as well, there have also been concerns about crypto's role in this conflict.
The latest agency to sound an alarm over this has been the United States Federal Reserve, which recently advocated for some form of crypto regulations to stop the Kremlin from using these assets to evade economic sanctions.
No Meaningful Progress Without Regulation
Speaking at a hearing before the House Financial Services Committee on Monetary Policy and the State of the Economy, Jerome Powell, the Federal Reserve Chairman, explained that congressional action on crypto will be required if the United States is truly to stop Russia from evading sanctions with crypto amid the ongoing Ukraine crisis.
Powell made his point when Rep. Juan Vargas (D-CA) asked if there are any risks of Russia actually evading the sanctions with crypto. The question came following the ban on several Russian banks from the global SWIFT financial system. Replying, Powel explained that the entire crisis underscores the need for quick congressional action on digital finance - especially cryptocurrencies.
"What's needed is a framework, in particular ways to prevent these unbacked cryptocurrencies from serving as a vehicle for terrorist financing and just general criminal behavior, tax avoidance and the like," Powell said in part.
Rep. Jim Himes (D-CT) agreed with the Federal Reserve Chairman, explaining that the sanctions on Russia and its most prominent people have shown some results. However, the United States risks undermining these results when there's no uniform framework for regulating digital currencies that the rest of the world can follow.
So far, there hasn't been much progress on the regulatory front. Understandably, Congress is being distracted by many things, including getting the country out of the pandemic and finding a way to stimulate economic growth across the board. However, with the risk of Russia actually using crypto, it seems like now might be the perfect time to give crypto regulations proper consideration.
World Leaders Up The Ante On Russia
Fortunately, governments worldwide appear to understand this risk and are taking some action. Last week, a statement from the White House explained that several governments had come together to take additional action against Russian President Vladimir Putin and several of his close allies.
As the statement read, the governments - including those of the United States, United Kingdom, Canada, Japan, France, and the European Union - had agreed to take additional action against Russia to economically isolate it from the rest of the world. The actions include banning Russian imports, banning the sale of luxury goods to Russia, and watching any attempts by the Kremlin to evade the existing sanctions.
The statement also explained that the U.S. Treasury Department would have the task of watching for any Russian evasion attempts as the sanctions begin to go into effect this week.
"Treasury is closely monitoring any efforts to circumvent or violate Russia-related sanctions, including through the use of virtual currency, and is committed to using its broad enforcement authorities to act against violations and to promote compliance," it read in part.
The fears over crypto's role during the Ukraine conflict aren't entirely unfounded. It is true that cryptocurrencies have been a major boost to the Ukrainian resistance, funneling over $50 million in funds to the country already, but, given crypto's open nature, anyone can access it.
There's also the fact that crypto companies have been slow to restrict Russian users. Traditional finance companies have quickly dropped Russia from their supported countries list, but crypto firms haven't. This creates an opportunity for pro-Putin loyalists to donate to their cause, causing concerns for many who would like for that not to happen.
Many experts have weighed on this issue, claiming that crypto won't be able to help the Russian government without industry experts knowing and putting a stop to it. However, it is becoming increasingly clear that regulation will perhaps be the best way for everyone to ensure that crypto doesn't serve as an escape mechanism for the Kremlin at the moment.