Crypto in the time of sanctions
If you looked out at the skyline in St. Petersburg, Russia, today you would immediately notice that something had changed. It’s the Russian flags – they suddenly appeared, as if out of nowhere.
“On every building, on the school, and the libraries, this is what I can see and this all changed in two weeks,” a Russian businessman we’ll call Stanislav said. “Maybe from before we had no flags, but now they are everywhere.”
Stanislav — we’re just using his first name to allow him to speak freely about life in Russia — is 37 years old, bearded, and shaves his head. He owns a marketing business in St. Petersburg and specializes in search engine optimization. He is watching the sanctions drive everyone away. All his friends are IT guys, he says, they speak English and have done well for themselves and almost to a person, they are leaving Russia.
This is a brain drain of professionals; citizens who, like him, drive foreign cars, own their own apartments, and send their kids to private schools. And now they are finding creative ways to get their money out of the country and find a fresh start somewhere, anywhere, that is not too expensive.
Moscow knows they are trying to go. They’ve started offering low-interest mortgages and are making it hard to take rubles out of the country all in a bid to stem the tide of departures. Stainslav and his friends have found a way around that too – they are turning to cryptocurrencies.
“It’s very hard when you see that all your friends who understand what’s going on are in shock,” Stanislav said. “I think already five or six friends of mine have already left the country by car, by airplane.” The only reason Stanislav hasn’t followed suit is because his wife is nine months pregnant and isn’t permitted to travel. “We cannot fly. We cannot use the car to cross the border,” he said, “and now there are some problems with payments.”
The sanctions the U.S. and its allies have leveled against Russia have essentially started to unplug the economy. Stanislav and his friends are caught in the middle. “I have some clients from the Netherlands and from Israel and they cannot pay for my services right now because my bank is blocked by sanctions. So I’m trying to find a solution.”
The obvious solution, he said, was cryptocurrency — or crypto for short. Unlike other financial institutions, crypto exchanges have chosen not to suspend service in Russia. Crypto executives say they have stayed on so that everyday Russians can keep working. For Stanislav, crypto has helped with the small things: it allows him to pay for Netflix and his company’s Slack subscription.
But it is no way to run a business. It is a stopgap measure. Crypto, he explains, isn’t really designed to pay monthly bills: commissions and transaction fees make it prohibitively expensive in normal times – the times before the sanctions. “If you’re trying to transfer someone $1,000, you can spend about $30 or $40 for a commission,” Stanislav said. “But if you don’t have any other option, why don’t you?”
Western Union on steroids
For the Russians who can leave the country, those professionals with little or no intention of returning, converting all their ruble savings into a digital currency can be a godsend — a Western Union money transfer on steroids.
That has led to another unexpected change in Stanislav’s life: he’s become a kind of crypto guru, teaching friends and family how to use digital currencies. Consider his sister. She left Russia weeks ago to join their mother in Egypt. Stanislav has been trying to explain to her how to set up a digital wallet and foreign debit card and how to withdraw Bitcoin and turn it into cash.
“You take some rubles here, you buy some USDT on Binance,” he explains. USDT is a cryptocurrency that is pegged to the US dollar and Binance is an online cryptocurrency exchange. “Then you convert it on the other side.”
Stanislav also uses “peer-to-peer” exchanges to trade crypto. Essentially, he knows a guy, who knows a guy who will trade crypto for rubles. “Even you can go to the cafe and just sit with him by the table,” he said. “You will send them the transaction and they will change it into cash so you can use it.”
It’s working for his sister in Egypt. He’s been sending her money and trying to find her a job. Under the best of circumstances that’s been complicated. Her bank accounts are in Russia and sanctions have blocked Russian banks from performing simple international transactions so once again crypto currencies are helping them out.
But it is a temporary fix. It helps Stanislav’s sister while she tries to get set up in Egypt, but Stanislav says he can’t really go invoice-to-invoice and paycheck-to-paycheck only using crypto.
“The quality of my life here will be radically decreased. You cannot buy the parts for your car, you cannot buy things for a newborn. You cannot buy any furniture. So it will be like, I dunno. It’s like we are [going back] 20 years.”
There is an old adage that prices never go up in Russia, instead goods just disappear.
‘Like a swastika’
While all this is unsettling for Stanislav, what he finds most worrisome is the way vestiges of a nationalist past are beginning to appear all around him. It began with the flags and then other symbols appeared. “Like the big Z symbol, you know this,” he asked. “A big Z like Zorro.”
He first saw the symbol painted on the tanks rumbling across the border into Ukraine. Now, the letter is everywhere: on stickers, drawn on dusty car windshields and most recently, stylishly inserted into words on State TV and on the jersey of a Russian Olympian.
He says it is supposed to be a sign of unity. “I’m with you,” it is meant to say, “and you and I are supporting the fight against the Ukrainian government.”
Stanislav – who is half Russian, half Ukrainian – says, for him, it has taken on a more sinister meaning. “It means like you are working for the war, so like you’re supporting it,” he said. “But it is the same as the German swastika for me and for people who understand what is happening now. It scares me.”
There are other worrisome signs. His kids are in private school now, but in the government schools kids are already being subjected to “patriotic education. “They are talking about how this is not a war, but it is a special operation to free Ukraine,” he said, adding that this seems to be whispering to him about the future.
“My business was generating for me and my family €6,000 a month,” he said, adding that he got the equivalent of that much in rubles. But just in the past month business is down. “Now it is €4,000 instead of €6,000 and in one month I expect it will decrease like 50% because clients are going to stop their marketing budgets.”
Last week, Russia announced that it might be willing to accept Bitcoin from friendly countries as payment for its oil and gas exports. It is clear Moscow is looking for other ways to be more flexible about the way it gets paid – just as Stanislav has been.
His wife is expected to give birth any day now and he’s already thinking through how to get a passport for their newborn so the family can leave. “Maybe in two or three months we’ll go somewhere neutral like Turkey,” he said. “But for now: no happy news. No optimism.”
Sean Powers and Will Jarvis contributed reporting to this story.