Trolling Sanctions, Top Russian Pol Suggests Bitcoin For Gas

In other circumstances, you’d have to wonder if Pavel Zavalny, head of the Russian State Duma’s Committee on Energy, was trolling European Central Bank President Christine Lagarde when he suggested that the government would sell its natural gas for bitcoin.

That was Wednesday, March 23. A day earlier, crypto-skeptic Lagarde told attendees of the Bank for International Settlements (BIS) Innovation Summit on Tuesday, that “volumes of rubles into stable[coins], into cryptos, at the moment [is at] the highest level that we have seen since maybe 2021.”

See also: Crypto’s Impact on Russian Sanctions Could Lead to Tougher Regulation

Up or down?

Lagarde’s assessment does not match what is happening on crypto exchanges, according to several sources including highly-regarded blockchain intelligence firm Chainalysis. While the data isn’t comprehensive of all exchanges, it found that as of March 18, crypto purchases in rubles were about $7.4 million, down from $70 million on March 7.

Meanwhile, crypto data firm Kaiko found $5 million in Tether’ USDT stablecoins — by far the most heavily used in purchasing cryptocurrencies on exchanges — on March 22, down from the March 7 high of $38 million.

Which isn’t to say that Russian oligarchs aren’t buying crypto, but it does make Lagarde’s statement seem a bit out of date — particularly as Chainalysis is heavily involved in law enforcement’s use of bitcoin tracking to shut down crime, terrorism funding, and of course, longer-term sanction busting by North Korea and Iran.

Chainalysis Co-founder and Chief Strategy Officer Jonathan Levin got in a more direct faceoff with a leading U.S. crypto-skeptic, Sen. Elizabeth Warren (D-Mass.), at a March 17 hearing on “Understanding the Role of Digital Assets in Illicit Finance” before the Senate Banking Committee.

Asked if crypto obfuscation techniques like chainhopping and mixing services could help a Russian oligarch hide $1 billion, Levin said “Senator, the answer to that question is ‘no,’” explaining that the liquidity to hide that much money doesn’t exist.

Pro-bitcoin or anti-dollar?

Zavalny’s comments about selling gas for bitcoin came at the end of a longer comment explaining a new policy that “unfriendly nations” — those imposing sanctions — would have to a pay for the gas deliveries that heat and power much of Europe in either rubles or gold.

The goal, Zavalny said, is to move away from pricing its natural gas in dollars and euros. Friendly nations would be able to use their own currencies — such as Chinese yuan or Turkish lira — or rubles.

“We have been proposing to China for a long time to switch to settlements in national currencies for rubles and yuan,” he said, according to CoinDesk. “With Turkey, it will be lira and rubles. The set of currencies can be different, and this is normal practice. If there are bitcoins, we will trade bitcoins.”

Which, to be fair, sounds a lot more like an off-hand comment than a policy statement, or even suggestion.

But it points to two things: First, Russia is aware of the crypto-as-sanctions-buster policy debate, and while the state and powerful oligarchs may or may not actually using bitcoins or other cryptocurrencies in this way, it’s in their thoughts.

And not as a payments rail that they cannot use to move money.

Dedollarization

Second, it highlights that Russia is serious about breaking away from the dollar-pricing standard in international trade, particularly in oil and gas.

In a Jan. 22 report, Mrugank Bhusari and Maia Nikoladze of the Economic Statecraft Initiative at the Atlantic Council’s GeoEconomics Center said that Russia and China were “partners in dedollarization” — a process that Russia began pursuing in 2014, after sanctions were imposed following its first invasion of Ukraine, when it annexed Crimea.

For China, the process began in the wake of the 2018 trade war’s tariffs.

The report said that “23% of Russian exports to China were settled in the dollar in 2020, [while] 60% of Chinese exports to Russia were still denominated in the dollar.”

That said, Russia’s dedollarization has largely involved switching to the euro, not the ruble. And, Russia proposed a bilateral alternative to SWIFT — from which it has just been expelled — as early as 2019.

Digital yuan v. dollar

This highlights widespread concerns in the U.S. and EU that one of the goals of China’s imminent launch of its digital yuan central bank digital currency, or CBDC, is unseating — or at least destabilizing — the dollar’s place as the world’s reserve currency.

Read more: As Digital Yuan Struggles, Does America Really Need a Digital Dollar?

That’s something that made its way into President Joe Biden’s March 10 executive order instructing all relevant government agencies to recommend a regulatory framework for cryptocurrencies.

It’s also been a concern in congress for some time. Last summer, Rep. Tom Emmer (R-Minn.), leading Republican on the House Financial Technology Task Force with a strong interest in developing crypto-positive policies, said the “U.S. dollar is the reserve currency, but the longer we wait to adopt a cryptocurrency that maintains privacy, the more threatening the digital yuan could become. Which is why the Fed needs to have a little bit more of a jump when it comes to this.”