Spread of Sanctions Makes Privacy Tokens the Hot Bet in Crypto Markets

Analysts point to the Ukraine war and related financial sanctions as the reason MASK and Monero's XMR, among others, are trading higher.

AccessTimeIconApr 13, 2022 at 4:41 p.m. UTC

Lyllah Ledesma is a CoinDesk Markets reporter currently based in Europe. She holds bitcoin, ether and small amounts of other crypto assets.

Privacy tokens – cryptocurrencies that preserve anonymity by obscuring the flow of money across their networks – have been trending upwards over the last 30 days, with some crypto analysts pointing to geopolitical tensions as the catalyst.

Mati Greenspan, founder of the foreign-exchange and cryptocurrency analysis firm Quantum Economics, said the upward move may be driven by speculation about the imposition of financial sanctions. Privacy tokens make it difficult to work out who sent what to whom, a useful shield if users don’t want anyone tracking or viewing their financial activity.

“We can probably assume that a lot of the sanctions on Russian citizens are forcing them into crypto,” said Greenspan, in an interview with CoinDesk. “If bitcoin itself is not anonymous enough for their specific needs, they may be buying more privacy-centric coins.”

Monero's XMR, the largest privacy token by market capitalization, is up 35% over the last 30 days, compared with bitcoin (BTC), the world’s largest cryptocurrency by market value, which is up 6% over a 30-day period, according to data from Messari. Monero prides itself on providing a “secure, private, untraceable cryptocurrency that keeps money confidential,” according to its website. Binance, the world's largest cryptocurrency exchange by trading volume, published a blog post last week on the top 10 privacy tokens on the platform, with XMR at number 1.

As reported by CoinDesk Tuesday, XMR’s appeal since Russia invaded Ukraine has only grown, according to Lux Thiagarajah, head of trading at BCB Group, a business-to-business provider of banking rails to crypto companies.

“People around the world are beginning to realize that your money is not actually your money if it's held in a financial institution with oversight from the government," Jeff Dorman, chief investment officer at Arca, said in an email with CoinDesk. "At best, it's someone else's liability to you that you may or may not be able to recover.”

“That is very bullish for stablecoins, bitcoin and privacy tokens that you can own as a bearer asset,” added Dorman.

Is Ukraine crisis propelling crypto market activity?

The European Union recently voted in favor of controversial measures to outlaw anonymous crypto transactions. The move was criticized by many in the industry who said it would invade privacy and stifle innovation.

"There are two perspectives that are helping to form the narrative of privacy coins," said Juan Pellicer, an analyst at IntoTheBlock. "First, the macro situation with the regulatory pressure on cryptocurrencies held by Russian entities that try to circumvent financial sanctions from the U.S. and EU. And as an extension, the recently approved EU law that tries to improve traceability on coins withdrawn from centralized exchanges."

So far, it should be noted, there's scant blockchain data showing a major increase in overall cryptocurrency usage due to the Russia-Ukraine war or related sanctions, CoinDesk’s Anna Baydakova reported this week.

Blockchain Analytics firm Crystal Blockchain monitored the hot wallets of the major cryptocurrency exchanges working with the Russian ruble and Ukrainian hryvnia and found no significant fluctuations related to the war and migration.

MASK, the token of the Mask Network, a platform for users to send encrypted messages, cryptocurrencies and dapps, is trading up 14%. The privacy token decred (DCR), which has a market capitalization of $759 million, is also in the green, gaining 9% over the last 30 days.

Another reason for the spike in price for some privacy token protocols is that investors might be moving capital out of sectors like decentralized finance (DeFi) into privacy coins, according to Charles Storry, head of growth at Phuture, a crypto index platform.

Daily active users (DAU) of the top decentralized finance (DeFi) applications has been declining across the board, according to data from Dune Analytics. Storry said that because of this, investors are looking for the next place to get yield and growth.

“Privacy coins could be the next high-growth sector with the right proposals,” he said.

“More capital coming into the sector would suggest an expected new increase in proposals that looks to change the prehistoric legacy of these protocols,” said Storry.

An outlier is zcash (ZEC), the second largest privacy coin by market capitalization, down 5% over the last 30 days.

“While the (Zcash) protocol has had success, the tokenomic model hasn't reflected this for holders,” said Storry. “We've seen a change in legacy crypto applications like MakerDAO with new tokenomic proposals. I foresee a similar thing happening with the privacy coin sector.”

What are privacy tokens?

Privacy tokens differ in terms of technology and also conceptually: Some are blockchains without smart contracts that aim to act as store-of-value asset (similar to bitcoin), whereas others are focusing on smart contracts and having a decentralized finance focus at some point but more private.

The crypto data and analysis firm Messari lists 22 privacy assets.

Says IntoTheBlock's Pellicer: "Some others differ on the way they understand privacy, by having traceable accounts and amounts by default or not. Others differ in the cryptography used, either cutting-edge algorithms or more battle-tested technology."


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Lyllah Ledesma is a CoinDesk Markets reporter currently based in Europe. She holds bitcoin, ether and small amounts of other crypto assets.

CoinDesk - Unknown

Lyllah Ledesma is a CoinDesk Markets reporter currently based in Europe. She holds bitcoin, ether and small amounts of other crypto assets.

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