'Why accumulate reserves [in dollars] if they can be lost so easily?' Putin has asked

The Russian government has been a historic opponent of bitcoin, banning its use for domestic payments, but has recently come to see the potential benefits of virtual currencies for evading U.S. and Western sanctions.

Russian Finance Minister Anton Siluanov discussed on Russian TV Wednesday whether bitcoin (BTCUSD) and other digital assets can be used to evade U.S. sanctions on foreign transactions.

He said that these methods "need to be developed and expanded," and that he expects them to come "next year."

The comments will give more fodder for many in Washington, D.C. who see cryptocurrencies as a threat to U.S. national security and law enforcement's ability to stop money laundering and other illicit activity.

Experts say, however, that Russia's experiments with crypto cross-border payments are more a sign of the effectiveness of sanctions on the traditional dollar-based currency system, and that cryptocurrencies cannot be used at any large scale to bypass the U.S.-led international financial system.

"A great sign that sanctions on Russia's banks are working is Russia's forced adoption of a series of inferior payments options like bitcoin, barter, gold (GC00) and less-liquid currencies" wrote monetary economist John Paul Koning on X Wednesday.

Biden administration officials, who have a reputation for being unfriendly to the crypto industry, admitted on several occasions that the large-scale use of digital assets for illicit cross-border payments was not a major concern.

Alessio Evangelista of the Treasury's Financial Crimes Enforcement Network said in a 2022 address that the administration "acknowledged that large-scale sanctions evasion using cryptocurrency by a state actor like Russia is not practicable," adding that "you can't flip a switch and run a G-20 economy on cryptocurrency."

The Trump administration is expected to be much more pro-crypto, but incoming officials have expressed doubts that bitcoin or other digital assets can be effectively used to undermine U.S. power.

David Sacks, the Silicon Valley entrepreneur who will take on the role of Trump's "crypto czar," is skeptical of the efficacy of sanctions altogether.

He said in March that the idea that financial sanctions against Russia "are working is delusional," adding that the real victim of such restrictions are ordinary people, like those in Europe paying more for energy as a result of trade embargoes.

The Russian government, led by President Vladimir Putin, began shifting its anti-crypto stance in recent months, legalizing crypto mining and its use in international payments.

Putin spoke favorably earlier this month about bitcoin as an alternative to the U.S. dollar DXY for countries like Russia facing heavy financial sanctions from America and its allies, according to Reuters.

"Why accumulate reserves [in dollars] if they can be lost so easily?" Putin questioned. "For example, bitcoin, who can prohibit it? No one," Putin said.

Yet experts remain doubtful that cryptocurrencies are large or liquid enough to represent a true threat to the U.S. dollar's dominance.

While bitcoin's total market capitalization has more than doubled over the past year to nearly $1.9 trillion, that's small in comparison the value of trusted government-backed currency in circulation around the world.

"Russia's move to integrate crypto into its financial system may improve its ability to bypass the U.S.-led financial system and to engage in non-dollar denominated trade," analysts at the blockchain intelligence company Chainalysis wrote in September.

"However, on-chain sanctions evasion at scale remains highly improbable, given Russia's total foreign exchange reserves are just under half a trillion dollars, with approximately $300 billion in dollars, euros and British pounds still frozen," they added. "Current crypto markets simply do not have the liquidity to accommodate such large-scale transactions."

-Chris Matthews

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.