The country is mulling banning crypto mining and crypto-related transactions via Russian financial services
The Central Bank of Russia issued a report on Thursday in which the regulator proposed to officially prohibit the issuance, circulation, exchange, and trade of cryptocurrencies and stablecoins (tokens linked to fiat currencies), as well as banning the organization of these operations on Russian soil.
The ban would effectively mean Russians won't be able to pay with crypto holdings for any goods, works, or services - not for a cup of coffee, nor for a taxi ride. They also won't be able to make money transfers in crypto, nor organize a crypto exchange.
No. The regulator has proposed fining firms and individuals that violate the ban.
If you're an individual investor, then the answer is no. You can still own crypto, but only as an asset. You won't be able to use it in Russia, but you will be free to use it abroad. However, it has been proposed that operations with cryptocurrencies in foreign jurisdictions by Russian citizens should be monitored.
The regulator has proposed banning all financial enterprises from owning investments in cryptocurrencies or using related financial instruments. The use of Russian financial intermediaries and financial market infrastructure to carry out any operations with cryptocurrencies will also be illegal.
The Central Bank has been vocal about the threats posed by cryptocurrencies due to transaction anonymity. The regulator has warned crypto is becoming increasingly popular for illegal activities, including fraud, money laundering, and terrorist financing. Moreover, a widespread use of cryptocurrencies could undermine the stability of the ruble, leading to an outflow of capital from the country, the regulator says. Due to the flow of capital from the traditional financial system to the cryptocurrency market, there is a further threat to the financing of the real sector of the economy.
As the ban is merely a proposal for now, it has not yet led to any financial consequences. However, as the central bank has outlined, Russian citizens account for a significant share of the global cryptocurrency market. The volume of operations of Russian individuals with cryptocurrencies may reach $5 billion, the report says. Russia is also the globe's third-largest bitcoin miner, accounting for roughly 11% of its mining volume. While individual crypto-owners would have to merely buy a plane ticket to use their crypto holdings outside Russia (which is also an inconvenience, but a relatively small one), miners would have to spend a lot on moving their activities across the border to some more crypto-friendly state.
As expected, the prospect of a crypto ban has been met with a wave of opposing public opinions. Crypto-enthusiasts state that the central bank's approach is unprofessional, and that it won't be able to monitor and prevent all crypto operations in any case. While supporting the idea of crypto regulation - for instance, to pluck out illegal transactions - the community is appalled by the idea that authorities may prohibit activities which are safe and legal. Others, however, say that Russia has a right to defend its national currency.
The Central Bank now wants to discuss with the market whether its participants support the proposed crypto ban. But experts have already warned that even if the ban is officially introduced, authorities will have a hard time enforcing it. For instance, the regulator has practically no tools to detect transactions with cryptocurrencies. Experts warn that authorities would have to completely stop all transfers between individuals to limit p2p transactions and payments to crypto exchanges across Russia. An action on such a scale would not be approved, even for the Bank of Russia.
This situation is also complicated, as most miners in Russia do not use the power of commercial data centers, but instead organize their own sites. "Theoretically, such sites can be identified, but the question is how much it will cost, how expedient it will be. It is impossible to distinguish a mining farm from, for example, a greenhouse remotely - they both consume electricity evenly and around the clock; that is, you will need to gain personal access to every facility," Dmitry Bederdinov, Data Centers and Cloud Technologies Council CEO, told RBC. Imagine a police officer going from door to door to check whether you mine crypto or grow strawberries.
Analysts warn that in the event of a ban, the crypto sector in Russia will turn into a huge black market, which might be far worse than even its current unregulated state. Also, the restrictions proposed by the central bank will hardly solve either the problem of money leaving supervision or the growth of crypto investments, especially given that the regulator would allow Russians to own crypto and use it abroad - so much for stalling capital outflows. Overall, the majority of analysts believe that what Russia needs is clear regulation of crypto, not a sweeping ban.
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