Russia can't live without cryptocurrencies

In 2011, Li Xiaolai, who was still a teacher at the time, commented on Bitcoin as "the world rebelled when this thing came out". Bitcoin is the first time in human history that private property has been made sacred and inviolable by technical means.

Such an expression is a bit abstract, but in Russia in 2022, ordinary people have truly experienced the inner meaning of this sentence.

When the stick of financial sanctions fell, the traditional financial infrastructure was paralyzed, and cryptocurrency became Plan B. Stablecoins such as USDT became the settlement currency for foreign international trade, and a large number of Russian tycoons used cryptocurrency to transfer wealth.

The Russian government passed legislation to allow the use of digital currencies in cross-border transactions and exchange transactions from September 1, 2024, and to legalize cryptocurrency mining in Russia from November.

However, surprisingly, Russia's current cryptocurrency capital is not Moscow, but Dubai, thousands of miles away.

Russia needs cryptocurrency

Under the shadow of the Russian-Ukrainian war, cryptocurrency (Crypto) has gained the most fertile soil in Russia and thrived.

As early as the beginning of the war, according to Reuters, a large number of Russian tycoons carried billions of dollars of cryptocurrency to cash out in Dubai, and even directly used Bitcoin to buy local real estate in Dubai, because the UAE did not join the US and EU economic sanctions against Russia.

Under the US financial sanctions, a large number of European and American companies withdrew from the Russian market, and the international bank settlement system failed. At this time, cryptocurrencies represented by USDT came to the stage.

In April 2024, the Deputy Secretary of the U.S. Treasury issued an official statement to the Senate Committee on Banking, Housing and Urban Affairs, claiming that Russia was using Tether's USDT stablecoin to bypass economic sanctions.

Even Chinese businessmen who were looking for gold in Russia began to feel the pulse of Crypto.

After the Russian-Ukrainian conflict, Europe and the United States and other countries blocked automobile exports to Russia, and China became the main exporter of automobiles to Russia. A large number of Chinese traders discovered wealth opportunities, and Lin Xiang was one of them.

They usually order ready-made cars in Xinjiang, register, register, and insure them before canceling their registrations. Then they are exported as second-hand cars. These vehicles are sent to Xinjiang land ports, and then to Khorgos and other places for customs clearance, and then arrive in Bishkek, the capital of Kyrgyzstan. Since Russia has signed a tariff agreement with it, Bishkek can enjoy more favorable tariff policies than goods directly sent to Russia, and then be shipped to Moscow or St. Petersburg, the central cities of Russia.

For example, the Ideal L9 produced in China is large, with refrigerators, color TVs, large sofas, and heated seats. Russians regard it as a "substitute for Land Rover" and it is sought after by Russian tycoons. According to the distribution map of Ideal Auto's national city sales from January to February 2024 recently published online, the city with the best sales of Ideal Auto in 2024 is not Beijing, Shanghai, Guangzhou, or Shenzhen, but Urumqi, Xinjiang.

Tank 500 and Ideal L9 sell for about 400,000 yuan in China, but can be sold for more than 9 million rubles (about 700,000 yuan) in Russia.

However, the Chinese traders who made a fortune in Russia also have their own troubles, that is, they earn rubles in Russia, and it is not easy to convert them into RMB, and they are easily affected by large fluctuations in the exchange rate, so they do not want to hold rubles.

Therefore, some Chinese traders tried to convert rubles into USDT, or directly receive payment in USDT, which also led to the underground USDT-ruble over-the-counter trading market being very hot. Compared with the USD/RUB exchange rate, the USDT/RUB exchange rate has a premium of about 1%.

Perhaps, you in front of the screen have questions, Why not trade directly in RMB?

Bloomberg published a report in July titled "Direct RMB Payments Are Getting Harder, Russian Companies Have to Take Their Luck in Trade with China", explaining this.

Several major Russian commodity exporters said that after the United States expanded the criteria for implementing sanctions in June, direct payments in RMB were increasingly frozen or delayed, and trading with China became like taking their chances. US sanctions and the threat of secondary sanctions have led to more and more Chinese banks being reluctant to make payments and foreign trade settlements with Russia.

Companies that encounter problems are usually able to find alternative payment methods, such as using cryptocurrencies or trading through former Soviet countries such as Kazakhstan or Uzbekistan, but this will increase costs.

Senior executives of at least two large Russian metal producers revealed that they have begun using Tether's stablecoins and some other cryptocurrencies to settle some cross-border transactions, with most of their counterparties being Chinese customers and suppliers.

The surge in the use of cryptocurrencies has helped Russia circumvent financial sanctions, allowing the Russian government to begin adjusting its cryptocurrency policy laws and regulations to support and encourage cryptocurrencies.

On July 30, 2024, the Russian State Duma passed a law in its second and third readings that allows the use of digital currencies, including Bitcoin (BTC), Ethereum (ETH) and stablecoins (such as USDT), in cross-border transactions and exchange transactions from September 1, 2024, marking a major shift in Russia's attitude towards cryptocurrencies.

In addition, Russia has also passed a law that will legalize cryptocurrency mining in Russia from November, and Russian legal entities and individual entrepreneurs listed in the register of the Ministry of Digital Development of the Russian Federation will have the right to engage in crypto mining.

According to Russian media kommersant, Russia plans to create at least two new cryptocurrency exchanges, one of which is planned to be based on the St. Petersburg Currency Exchange and focus on foreign economic and trade activities; the other is planned to be established in Moscow. The current main idea is to create a stable currency linked to the RMB and the BRICS currency basket.

Under financial sanctions, blockchain and cryptocurrency have built a decentralized and relatively censorship-resistant financial infrastructure for Russians at the lowest cost.

It can be said that Russia and cryptocurrency are now symbiotic.

Dubai, Russia's Crypto Capital

A little-known fact is that Russia's cryptocurrency capital is not in Moscow, but in Dubai.

Here, the politics are stable but the transparency is low, the sun is bright but the law is gloomy, you can get a residence visa by buying a property, and there is no extradition agreement with Europe and the United States, so it has become the first choice for Russian oligarchs and rich people to evade sanctions and transfer wealth, and it is also a paradise for the development of cryptocurrency.

As mentioned earlier, at the beginning of the Russian-Ukrainian war, a large number of Russian tycoons carried billions of dollars of cryptocurrency to cash out in Dubai, and even directly used Bitcoin to buy local properties in Dubai, which to a certain extent pushed up Dubai's housing prices.

When a large number of crypto tycoons poured in, a large number of local real estate developers in Dubai were also willing to accept cryptocurrency payments.

For example, DAMAC Properties, a giant developer of luxury homes in Dubai, has accepted cryptocurrency as a payment method since the beginning of this year. Emaar Properties, the developer of the world's tallest building, the Burj Khalifa, has also begun accepting cryptocurrencies such as Bitcoin and Ethereum as payment for its properties.

In Dubai, due to the close connection between real estate and cryptocurrency, most real estate practitioners have also stepped into the cryptocurrency circle. In Dubai's cryptocurrency activities, real estate people can be seen everywhere, and many crypto projects with Dubai characteristics have also been spawned - Web3 real estate.

For example, there are Dubai Web3 real estate trading platforms HouseLux and Directly, which tokenize Dubai real estate. Investors can directly purchase RWA assets to hold real estate in Dubai.

At the same time, a large number of Russian companies and individuals have moved to Dubai.

Today, Russians can be seen everywhere in Dubai, so much so that many Dubai residents exclaimed that "Russians have occupied Dubai."

Dubai's IFZA is one of the many free zones established to attract foreign investment. IFZA Executive Director Jochen Knecht said, "The number of Russian entrepreneurs and start-ups has increased tenfold compared to last year."

For example, the headquarters of Telegram, a communication software originated in Russia, is located in Dubai. Telegram founder Pavel Durov has a UAE passport and usually lives in Dubai.

Currently, the core circle of the entire TON ecosystem is also in Dubai.

According to relevant sources, almost all directors of the Ton Foundation currently live in Dubai. In addition, the headquarters of TOP (The Open Platform), the core development team of the TON ecosystem, is also located in Dubai, and its founder Andrew is a member of the TON Foundation.

TOP develops and builds multiple tools and projects within the TON ecosystem, such as Wallet in Telegram, as well as independent wallets TonKeeper and Notcoin, which has millions of users.

DWF, a well-known Russian-background crypto market maker, also has one of its bases in Dubai.

In Dubai, providing crypto financial services to Russian tycoons has become a business, but this has also caused the US sanctions to target Dubai companies.

In 2023, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) sanctioned 22 individuals and 104 entities because these entities assisted Russia in evading sanctions, including John Hanafin, the founder of Dubai financial company Huriya Private, who was suspected of helping Russians transfer assets and invest in naturalization. His Ethereum wallet was marked by OFAC, and the address has received about $4.9 million worth of cryptocurrency, most of which is USDT.

At a time when regional conflicts and geopolitical tensions are growing, cryptocurrencies, which are often associated with gray, are gradually being tied to Russia, a country covered in silver, in a clever and self-consistent way.

The founder of Telegram was arrested in France, which was interpreted by the outside world as a political game between the West and Russia. Outside the real battlefield, there are many invisible parallel wars. On the financial battlefield, Russia has long been inseparable from cryptocurrencies.