Trump's views on cryptocurrency may have unintended consequences for Putin’s Russia

Donald Trump’s election win saw cryptocurrencies rally on exchanges around the world, and just last week Bitcoin broke through the US$100,000 barrier for the first time based on his pick Paul Atkins as chairman of the US Securities and Exchange Commission.

Atkins is a known proponent of cryptocurrency and has worked with entities in the cryptocurrency industry in the past. He’s also been a vocal opponent of the SEC’s current tough policies on crypto regulation.

"Paul is a proven leader for common sense regulations," Trump said of his nomination this month.

"He also recognises that digital assets and other innovations are crucial to Making America Greater than Ever Before.”

Trump’s son, Eric, said in a recent interview with CNBC that he and his father had been big fans of crypto “for a long time,” and Trump junior said the US risks being left behind if it fails to properly invest in digital assets.

“America better lead the way, otherwise we’re going to leave a lot behind,” Eric Trump said.

“The modern banking system is antiquated. It’s just a matter of time before crypto not only catches up, but just really leaps ahead. And so, we’re incredibly excited on a lot of fronts.”

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However, the Trump family’s bullish attitude to cryptocurrencies could have an unintended consequence – aiding Russian ambition in using crypto to sidestep trade sanctions and build its own cryptocurrency reserves.

Russia rethinks crypto

As recently as early 2022, the Central Bank of Russia was seeking a total ban on the trading of cryptocurrencies, citing concerns of a threat to Russia’s financial stability.

Fast forward to August 2024 and that all changed. President Vladimir Putin signed off on legislation that saw crypto-mining legalised, with trials of using cryptocurrencies for international trading beginning a month later.

Russian officials have been clear in their motivations for embracing cryptocurrency – it’s a way to both avoid reliance upon the US dollar and avoid global sanctions for its war against Ukraine.

In fact, cryptocurrencies have helped prop up the Russian economy at small scale for some time, particularly when it comes to pro-Russian activist groups using crypto payments to purchase military equipment, and proceeds of cyber crime.

According to blockchain data platform Chainalysis, in the first 12 months of the Russian invitations activist groups had raised nearly US$4.5 million to purchase equipment for Russian military units.

However, that is small beer compared to the proceeds of cybercrime. Chainalysis was able to track ransomware payments in 2022 to the value of more than US$450 million, and the bulk of that was likely paid to Russian hackers, which are often thought to have close ties with Russian authorities.

Other hacking groups, such as Killnet, have actively used their platforms to raise funds for the Russian military.

Slava Ukraini

Russia, however, is not alone in making use of cryptocurrency to fuel its war aims. By March 2022 more than US$56 million in crypto had been transferred to Ukrainian government crypto-wallets, and a year later that had grown to US$70 million.

“For emerging markets such as Ukraine, cryptocurrencies have the potential to act as a reliable store of value, reduce cross-border transaction costs, and boost financial independence. In fact, Ukraine ranked third on our 2022 Global Crypto Adoption Index for many of those reasons,” the Chainalysis team said in a February 2023 blog post.

“In addition to helping with war efforts, cryptocurrency donations are likely to encourage increased adoption and strengthen an economy that has otherwise been hampered by the war.”

A rising Bitcoin lifts all boats

Now it has emerged that like the US, Russia could be seeking to establish its own strategic Bitcoin reserve, and Putin is quickly warming to the idea.

"A legitimate question: why accumulate reserves if they can be lost so easily?" Putin recently said at an investment conference, as reported by Reuters. "For example, bitcoin, who can prohibit it? No one. Because they are new technologies. And no matter what happens to the dollar, these tools will develop one way or the other because everyone will strive to reduce costs and increase reliability."

Russia is already striving to build that reserve, having mined 54,000 Bitcoins in 2023, which was worth around US$3 billion as of September 2024. The country is currently the second-largest crypto-miner in the world, behind only the US, and the crypto it does have, especially Bitcoin, is now worth quite a lot more thanks to Trump’s pro-crypto stance.

The US and its EU allies are doing what they can to restrict Russian trade in cryptocurrencies, and companies like Chainalysis are doing their bit to disrupt on-chain transactions and attempts to evade traditional sanctions.

The grand irony, however, is that it's Trump’s own actions that could fuel future Russian reliance upon, and growth of, the use of digital currencies.