Monday was a holiday, so you’re getting this week’s edition of the newsletter a day late. But it was a pretty eventful day. We may be on the cusp of seeing the effect that widely coordinated, government-imposed sanctions have on digital currencies (and currencies’ ability to bypass this type of financial censorship).

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Two real-world events over the past week have interesting implications for crypto: Canada’s “freedom convoy” and that government’s efforts to shut this border blockade down; and Russia’s invasion of Ukraine.

Financial sanctions could prove bitcoin (and the broader cryptocurrency industry)’s value proposition. Even putting the crypto-specific implications aside, we’re going to be discussing sanctions and governments’ ability to impact how people transact more broadly for some time to come.

Governments are about to test the limits of sanctioning crypto wallets. Last week, Canada’s federal government put 34 wallet addresses on a list, warning crypto exchanges and financial firms not to facilitate any transactions with them. That hasn’t stopped the owners of these addresses from immediately moving their funds into other wallets or crypto exchanges like Coinbase and Crypto.com.

The crypto industry saw last week’s action as proof that bitcoin (and other cryptocurrencies) is necessary, even gaining agreement from traditionally skeptical voices.

The Canadian government’s action is separate and distinct from a Mareva injunction filed by a group of private locals affected by the protests. I think this distinction has been somewhat lost in the discourse but it’s an important one: The federal government froze bank accounts and crypto wallets outside of a judicial review process, while the Mareva injunction was granted by a court. The court in the private action is also giving wallet owners or operators a chance to respond.

The question now, to me at least, is whether this proves bitcoin’s value proposition. Regulators outside of Canada are undoubtedly looking at how the industry reacts and whether protestors receiving bitcoin are able to cash out or otherwise utilize their cryptocurrency.

Separately, I think we’re going to see a new test case in the international sanctions package that is about to be rolled out against Russia.

A quick primer: Russian President Vladimir Putin recognized two regions of Ukraine as being independent and deployed military forces inside these regions as “peacekeepers,” confirming U.S. and NATO fears that Russia would invade the European nation. U.S. President Joe Biden announced an initial slate of sanctions on Monday evening, with an additional tranche on Tuesday.

The European Union is similarly planning to impose sanctions, while Canada and Japan have already announced their own.

These sanctions so far are limited to certain entities, oligarchs, vessels and financial institutions, as well as businesses in Donetsk and Luhansk, the two Ukrainian regions at the heart of Russia's recent incursion.

To be clear: In no way do I want to minimize the potential harm and suffering I suspect we’re about to see in Ukraine. However, for the purposes of this newsletter, I’ll be focusing on the crypto-specific implications, mainly through these sanctions.

The U.S. sanctions regime is predicated on the idea that the dollar is the world’s reserve currency and/or the U.S. has the ability to influence the financial institutions that sanctioned entities with which might otherwise interact.

Among the most severe tools in the U.S. and NATO’s arsenal would be cutting Russia off from SWIFT, the financial communications network underpinning transactions worldwide. Over the past few years, we’ve been hearing more and more that some countries – namely, Russia and China – are looking to either create or work with a financial system independent of the U.S.

Central bank digital currencies like China’s digital yuan are one possibile tool to create this system. Former U.S. officials and academics even wargamed a scenario where China’s digital yuan was used to bypass U.S. influence.

An official at the Bank of Russia spoke to the possibility that the country could create a digital ruble as part of sanctions mitigation effort two years ago. It does not look like the country has put any serious thought or investment into a CBDC at this time, but this does go to show that, if nothing else, it’s on their minds.

The Bank of Russia announced a pilot stage for a digital ruble last week, though officials haven’t explicitly said whether they hope to bypass sanctions with it.

Of course, the idea that bitcoin or a CBDC or some other cryptocurrency can be used to bypass sanctions depends on that asset actually being picked up for widespread use. Canadian truckers have had difficulty using bitcoin to actually pay for anything, and digitizing the yuan or ruble as a sanctions-avoidance tool depends on the premise that the underlying yuan or ruble can secure a reserve currency-like status.

The technical fundamentals of these assets won’t be as big a factor here as the soft power efforts of encouraging adoption and making adoption feasible will be. And that’s a whole different kettle of fish.

Fed Chair Pro Tempore Jerome Powell will testify before the House Financial Services and Senate Banking committees next week. We’re still awaiting a vote on Powell and the other four Fed board nominees after Senate Banking Republicans walked out of a confirmation markup last week. Ranking member Sen. Patrick Toomey (R-Pa.) said he would like to ask nominee Sarah Bloom Raskin some further questions. Chairman Sherrod Brown (D-Ohio) called this a “political stunt.”

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde.

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See ya’ll next week!