The past few days have made it clear that in the face of economic and financial sanctions affecting their country, Russian citizens see Bitcoin as an essential safe haven to protect the fruits of their labor. Ruble - Bitcoin trading volumes have exploded, and this has had a significant effect on the price of Bitcoin, which gained 20% in 24 hours earlier this week.

That's all it took for us to hear voices saying that America and the European Union need to take stronger measures to be able to prevent Russia from escaping the economic and financial sanctions that are targeting it by using Bitcoin and cryptocurrencies.

Hilary Clinton has been urging Joe Biden to do just that lately, and Christine Lagarde just came out and said that the European Union needs to speed up legislation to get weapons to freeze cryptocurrency assets on targeted people's trading platforms.

While the Russian people do use Bitcoin as a safe haven as the data shows, there is a world of difference between that use and what politicians are now denouncing. As I said a few days ago, don't dream too much, Putin is not planning to go all-in on Bitcoin.

I will give you 3 main reasons why.

1. American companies can no longer trade with Russians placed on the SDN List in any medium

In the last few days, all the media have made headlines saying that the majority of Russian banks will lose their access to the SWIFT interbank network. Many people think that it is enough for Russia to use another exchange system to escape the American sanctions.

This is based on the misinterpretation of the real scope of the American sanctions that have just been announced against high-ranking Russian officials. It all starts with President Joe Biden passing an executive order to authorize OFAC (Office of Foreign Assets Control) to designate specific targets for U.S. sanctions: individuals, companies, governments, ...

OFAC adds these targets to the Designated Nationals And Blocked Persons (SDN) List. You can see the details here:

You can see the list of Russian individuals or entities that have just been placed on this list. The heart of the sanctions is here: anyone on this list can no longer access the American economy in any way. There are no longer any opportunities to buy American goods or services, sell products in American markets, or own property in the United States, ...

Americans who trade with individuals or entities from the SDN list risk very serious sanctions. There is zero tolerance at this level.

In addition to these sanctions, America has decided to freeze the assets of the Russian Oligarchs and the Russian Central Bank. This is in addition to the eviction of SWIFT from the majority of Russian banks.

While it seems tempting to use a global P2P payment system whose transactions cannot be censored like Bitcoin to bypass SWIFT, this does not change the original ban. No U.S. entity can trade with individuals or entities added to the SDN list. And this is true regardless of the medium of exchange used: gold, dollars, euros, ... and therefore Bitcoin or cryptocurrencies.

Russian banks can continue to make exchanges, but they will be more complex without SWIFT and they can not be in US dollars with US entities or individuals. Russia will therefore be more interested in a system that it can control rather than an open and transparent system like Bitcoin at this level. It has its SPFS system, which could be interconnected to the Chinese CIPS system sooner than expected.

Banished from the world monetary and financial system, Russia will turn to China instead. Bitcoin is not a risk that would justify any intervention by America, and the American authorities are well aware of everything I have just told you.

2. The Bitcoin market, and the cryptocurrency market as a whole, is too small to save the Russian economy

Bitcoin's market cap is currently $828B and that of all cryptocurrencies is $1.9T. This is already something significant, but it is far too small compared to the needs of the Russian economy to save itself. Ruble - BTC pairs don't represent much. The liquidity is not enough. Moreover, Bitcoin is too expensive for the needs of the Russian economy. Finally, the transparency of the Bitcoin network prevents it from being used to help Russia escape U.S. sanctions.

The Russian people can protect themselves with Bitcoin and cryptocurrencies, but that is because their needs are tiny compared to those of the Russian economy. On the other hand, the American and European sanctions are aimed at Vladimir Putin's regime and not the Russian people directly. So there is no problem with people exchanging their rubles for Bitcoin. It is something that will weaken the Russian economy even more. No worries there.

3. Vladimir Putin has been preparing his plan for years, and Bitcoin was never really part of it

Vladimir Putin has been preparing his plan for years. He has built a fortress around Russia by deleveraging the country year after year and accumulating massive currency reserves. At the heart of his plan is a clear desire to reduce Russia's exposure to the US dollar in favor of gold and the yuan, which accounts for 17% of the reserves of its central bank. This is huge compared to other central banks, where the yuan does not exceed 2 to 3%.

Putin has also oriented Russia's economy towards Asia, but not by making Blockchain a priority. He has also tried to make the country self-sufficient with varying degrees of success in different areas.

In all these plans, Bitcoin and cryptocurrencies were never his priority. It wasn't until the beginning of this year 2022 that Putin seemed to think it was best to keep a door open on the Bitcoin option. Too late to prepare to make it a preferred solution.

Putin's Russia will therefore turn instead to China and Asia to try to resist the American and European sanctions as best it can. This will be more than difficult because the Russian economy is already on the brink of collapse.

Final Thoughts

Some politicians or central bankers will take advantage of the current crisis between Ukraine and Russia to try to highlight the dangers of Bitcoin and cryptocurrencies. De facto, they will want laws passed to better control this ecosystem.

However, you shouldn't let all this noise fool you. Bitcoin and cryptocurrencies will only be used by the Russian people on the margins, while other solutions will have to be favored by Putin and the Russian oligarchs to protect themselves from the West sanctions.

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