After a hectic week on the European stage, some banks are opting to shut down Russian payments in lieu of their actions in Ukraine. The New York Times reported that the Biden administration is placing new sanctions on Russia over the current Ukrainian conflict, in an attempt to stem their access to foreign capital.
Actions have been taken to remove Russian banks from the SWIFT network (the network used for interbank exchanges). And, the prospect of future disruption could lead to further scrutiny from NATO and its allies.
For fintech and payments, this could mean greater market insecurity and wider adoption of alternative payments. Less than a week into the conflict, the financial fallout could have major consequences for global commerce.
The Role of Cryptocurrency
Authorities are worried that state actors and banks could use cryptocurrency to lessen the impact of US and EU sanctions.
For instance, previous sanctions imposed in 2014 cost Russia $50 billion per year. Since then, however, the cryptocurrency market has grown considerably. Back in November, bitcoin his a market cap high point of nearly $1.3 trillion. This increase in cryptocurrency’s relevance could pose a serious challenge for international agencies seeking to curb Russian spending and buying power.
The U.S. is aware of the potential loophole, which is leading to more scrutiny of digital assets. As such, crypto exchanges are set to be a primary focus of the U.S. Securities and Exchange Commission’s crackdown on digital assets in 2022.
Impact on Crypto Payments
“I’ve asked staff to look at every way to get these platforms inside the investor protection remit,” said Securities & Exchange Commission Chair Gary Gensler in a recent press conference. “If the trading platforms don’t come into the regulated space, it’d be another year of the public being vulnerable.”
Last year, Gensler argued that tokens, as virtual securities, should be covered by the SEC’s strictly enforced rules. This would prevent many opportunities for market abuse, and improve regulation of international market sharing.
This added scrutiny could be a critical security component for crypto investors looking to trade assets. At the same time, that’s precisely what many crypto enthusiasts want to avoid.
Many cryptocurrency advocates argue that tokens shouldn’t be subjected to traditional regulations, like equities and bond trading. The anonymity and decentralization of cryptocurrency is what attracts these investors. They argue regulation would stymie values and complicate exchanges.
The Challenge of Regulating Digital Assets
On the topic of regulation, the first thing to note is that it is not a stationary subject. In fact, regulations are highly impermeable, and differ from one administration or regime to the next.
For example, a Biden administration objective in finance promotes the investigation into and replacement of policies that negatively impact consumers on behalf of corporations. This would place limits on corporate entities that could affect many markets at once.
Another example of a government crackdown on corporate power would be the SEC’s investigation into Deutsche Bank’s environmental, social, and governance (ESG) products. Currently, since ESG’s are undefined, regulators are vested in tackling the corporation, rather than the product itself. This investigation could yield sweeping regulations that have yet to be articulated, and pose ramifications for the corporate model at large.
To return for a moment to the topic of cryptocurrency, there are over a dozen active spot bitcoin ETF applications under review by the SEC, none of which have been approved. With these measures, regulators appear to be approaching the spot bitcoin ETF model with extreme caution. As things stand, they currently do not meet investor safety qualifications that would encourage public access. So far, though, this stipulation hasn’t prevented investors from utilizing the digital asset exchange.
In the end, whatever regulations are enacted to curb abuses, will be assessed via accountability and market viability.
Market Effects
Simply put, we have no way to know how this conflict will play out over the coming weeks. What we do know is that uncertainty breeds fear, which can negatively impact markets. As long as payment processors and other financial institutions are vested in taking action against the Russian Federation, many markets are anticipating the sting.
It’s worth noting that digital assets like bitcoin have a reputation for shady practices. It’s not hard to see why they’re being weighed as options to avoid international sanctions. It remains to be seen how incoming regulation might affect the cryptocurrency situation, or whether proposed regulations will stick.
Until we have more clarity and stability with digital assets, market insecurities are the expected financial forecast.
