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Sanctions, money laundering and legalization: Maxim Kurbangaleev on the problems of the crypto market

Maxim Kurbangaleev SUEX sanctions

From the very beginning of its existence the cryptocurrency market assumed independence from state bodies and decentralized storage of information, which in turn implied the anonymity of those who conduct operations with cryptocurrency, explains Maxim Kurbangaleev.

In 2020-2021, everything changed: the state and its regulatory bodies could no longer stay away from the multibillion-dollar industry. Some jurisdictions (for example, China) have taken active measures to ban cryptocurrencies to protect their financial system; others, on the contrary, have legalized both the cryptocurrency itself and transactions with its use, bringing it to the level of a legal means of payment.

In September 2021, it became known about the first case of sanctions against a cryptocurrency company —  an over-the-counter broker or, simply put, a crypto exchange — SUEX. The US Office of Foreign Assets Control (OFAC) and Chainalysis (a company offering blockchain verification services) participated in the investigation. According to them, SUEX was engaged in money laundering, the volume of their illegal operations exceeded 480 million dollars.

The trend of mass inspections and the application of sanctions continued. Some crypto exchanges and exchange platforms were blocked. However, this was not the only problem of the cryptocurrency market in 2022. Financial expert Maxim Kurbanaliev shares his opinion on what is happening in the cryptosphere now, what caused the current downturn and what will stabilize the situation.

What is wrong with the crypto market? – Maxim Kurbangaleev

​​The cryptocurrency market is now in a so-called “bearish trend”, when the price of the currency is decreasing. Some market analysts call this period the “crypto winter”: along with prices, market capitalization is also decreasing, the volume of transactions is falling, and the participants of operations are in a pessimistic mood.

Other experts predict the collapse of blockchain technology with the preservation of only a few of the most famous cryptocurrencies. The difficult macroeconomic situation, global inflation and the slowdown in the economy in general do not help business to develop. Maxim Kurbangaleev believes that the cryptocurrency market has a number of its own specific problems, which triggered this fall:

“No doubt, the situation in the world has an impact on cryptocurrency activity. These are factors that are difficult to influence; but there are also those that can be worked out. I believe that the lack of regulation of the sphere is a huge disadvantage, which leads to a number of problems. Without control, the market can attract unscrupulous participants: scam projects, pyramids, money launderers and others. Without the defined requirements of the regulator for the identification and monitoring of operations, it is difficult to get rid of such illegal schemes. This, in turn, carries the risk of tarnishing the cryptocurrency of innocent users who purchase it in crypto exchanges or exchange platforms. How it is happening now: even if the very first block in the blockchain contains information that the cryptocurrency passed through an already banned project, then the user’s wallet receives a special label. Wallet functions may be restricted or even funds on it may be blocked. In fact, the user is responsible for other people’s actions. And this problem is connected with the lack of legislation, when the responsibility of wallet owners is not limited,” Maxim Kurbangaleev says.

For the same reason, illegal crypto activity remains high-risk. The value of cryptocurrencies is not regulated in an orderly manner, so any event (even a post on a social network) can cause the rise or fall of a particular cryptocurrency. “The regulation of the market will give some stability and guarantee. Initially, it was assumed that the value of the cryptocurrency would be regulated by the users themselves: the greater the demand, the higher the price. It is important to preserve this pricing principle, which has attracted so many participants, we just need to legislate it,” Maxim Kurbangaleev believes.

Maxim Kurbangaleev: Is there a future for cryptocurrency companies?

Like many analysts, Maxim Kurbangaleev is in no hurry to give up on the cryptocurrency market. The expert draws a parallel with the laws of nature:

“After the “crypto winter”, the “crypto-thaw” necessarily comes. Investors are turning their attention to cryptocurrency again, buying it at low prices and returning money to the market. Since regulators in many countries are already conducting large-scale inspections of crypto companies, there is a chance to extract fraudulent schemes from circulation. But at the same time, random “white” companies that simply “did not guess” the number and intensity of AML (Anti-Money Laundering) internal control measures should not suffer. The right solution, in my opinion, will be the global legalization of the industry, when market leaders, together with state bodies, will work out the legislative framework for this activity: licensing, requirements for identifying customers and partners, monitoring standards, and the signs of legality or illegality of the operation. I think that in this case the cryptocurrency industry will get a second wind.”

We also discussed with our invited expert what measures of protection against sanctions should be applied by crypto companies. Many crypto exchanges and exchange platforms carry out KYC (Know Your Customer) procedures for their clients, and also use programs for scanning and analyzing the blockchain (previously mentioned Chainalysis, Elliptic, etc.).

Maxim Kurbangaleev believes that under these circumstances this may not be enough: “I think it is better to play safe. We have an example of the banking sector with established AML procedures that have been proving their effectiveness for years. I think that companies in the cryptocurrency market should use these procedures for identifying and monitoring transactions so that local regulators cannot find illegal actions in their activities. Companies need to identify the client, as well as to make sure that the documents really belong to this person or company;  to check for presence on the sanctions lists and business reputation. This is the only way to survive this period of uncertainty,” the expert concludes.

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