Amid Russia’s war on Ukraine, crypto exchange chief execs like Kraken’s Jesse Powell are issuing warnings about storing digital assets with centralized custodians — like crypto exchanges.
The imminent risk? Potential court orders packed with crypto sanctions forcing exchanges to freeze Russian assets.
Led by the US and European Union, governments around the world are placing strict economic sanctions on Russia.
Ukraine’s government has since requested crypto exchanges to freeze addresses linked to both local users and politicians in Russia and Belarus, the latter having declared war on Ukraine in support of Moscow.
Crypto exchanges like Binance, Coinbase, and Kraken are now actively weighing the possibility of world governments forcing them to cut off Russia-based crypto traders from the digital asset ecosystem.
- Bloomberg reports that Binance has “taken steps to identify crypto wallets of sanctioned individuals” and is “prepared to act.”
- Another major exchange, FTX, is “consulting with officials in the US and Bahamas” in response to escalating legal risks.
- US-based Kraken admitted that it could be forced to comply with Russian sanctions.
“I understand the rationale for this request [to block Russian users] but, despite my deepest respect for the Ukrainian people, [Kraken] cannot freeze the accounts of our Russian clients without a legal requirement to do so,” tweeted Kraken chief Jesse Powell
“Russians should be aware that such a requirement could be imminent,” Powell added (our emphasis), responding to Ukrainian Vice President Mykhailo Fedorov.
Kraken already blocks sanctioned crypto users, Russian or not
Powell went on to state that storing crypto on any third-party platform carries risks, especially in countries that could issue court orders to freeze assets.
Kraken would not seize or freeze Russian assets without a valid government order, said Powell.
Fedorov previously posited that any potential blocking shouldn’t only target Russian and Belarusian politicians, but also “sabotage ordinary users.”
- Sweeping economic sanctions — including those that affect regular Russians — are an alternative to physical military intervention.
- Crypto exchanges widely uphold sanctions and have for years, most notably on direction of the US Office of Foreign Assets Controls.
- Still, Federov’s request drew criticism from individuals who cited the millions of dollars’ worth of crypto sent to support Ukraine’s defense.
Having tracked Ukraine’s largest crypto donations, Protos can confirm that much of those funds are flowing through local crypto exchange Kuna, likely to be sold or otherwise exchanged for fiat and utilized elsewhere.
“We’re managing to buy all of this stuff in Europe using crypto,” Kuna chief exec Michael Chobanian told CoinDesk.
“A lot of my friends in the crypto industry are helping out. We’re sending them crypto, they’re paying for [stuff] in euros.”
Earlier in February, Powell warned that governments could order exchanges to freeze assets in response to protests like the Canadian “Freedom Convoy,” which involved thousands of truck drivers demanding an end to workplace vaccine mandates.
Canada incredibly froze the protestors’ bank accounts and blacklisted certain crypto addresses. The fundraising site GoFundMe faced significant backlash for returning funds sent to convoy protestors.
Not to mention, Powell wasted no chance to throw a jab at the US government.
“Besides, if we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, step [one] would be to freeze all US accounts,” he tweeted.
He called this theoretical move “not really a viable business option” for Kraken. Binance has also signalled it would only freeze accounts tied to sanctioned users, as did Coinbase and KuCoin.
A Coinbase spokesperson told Motherboard (our emphasis):
“Instead, we will continue to implement all sanctions that have been imposed, including blocking accounts and transactions that may involve sanctioned individuals or entities. Our mission is to increase economic freedom in the world.”
“A unilateral and total ban would punish ordinary Russian citizens who are enduring historic currency destabilization as a result of their government’s aggression against a democratic neighbor. We remain vigilant as this invasion evolves and are deeply committed to playing our part.”
Judging from the heady streams of hot Ukraine takes from crypto users across the world, the ecosystem generally opposes war and favors individual rights.
But storing crypto assets on centralized exchanges like Kraken, which many investors do, adds risk of government officials forcing custodians to freeze assets.
And in the end, crypto exchanges will inevitably bow to government pressure, whether their marketing departments like it or not.
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Edit 13:43 UTC, Mar 1: Added quotes from Kuna chief exec via CoinDesk in paragraph 14 and 15.