The Bank of Russia is considering banning trading and investment activity with cryptocurrencies as a measure to minimize risks to the current financial system. Individual ownership of cryptocurrencies will not be affected, it said.
Elizaveta Danilova, head of financial stability at the Bank of Russia, said the central bank is considering banning the use, trade and investment of cryptocurrencies, in the country, as a protective measure against the risks that these digital assets represent for its stability.
In a recently published report by the Bank of Russia, entitled “Cryptocurrencies: Trends, Risks and Measures”The bank noted that the volatile and speculative nature of cryptocurrencies is a major risk to Russia's financial stability. Cryptocurrencies are widely used for illegal transactions due to their degree of anonymity, the bank noted. As such, the Bank of Russia is considering taking strong measures to ban their use, trade and investment within its territory.
The Bank of Russia's proposal follows in the footsteps of China, which in mid-2021 began tightening its measures against trading and mining activities in Bitcoin and other cryptoassets. In its report, the Bank clarified that the proposed measures are aimed at trading and investment activity with global cryptocurrencies and stablecoins. However, Danilova stressed that individual holding and ownership of cryptoassets by its citizens would not be affected.
Russia banned the commercial use of cryptocurrencies in early 2021, and in July of that year, the central bank announced that it would analyze the potential risks of this industry.
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Russia and its regulatory proposals
Cryptocurrencies reached the 3 trillions of dollars in market capitalization in November 2021. According to the bank, this corresponds to approximately 1% of global financial assets.
Although the entity points out that the participation of cryptocurrencies is insignificant compared to traditional payment systems, the impressive growth that this market has had in the last two years, of more than 1.000%, has raised concerns among regulators, who see these cryptoassets as potential risks to their stability and security.
Issuance, trading and investment in cryptocurrencies
The Bank of Russia stressed that the participation of traditional financial intermediaries in the cryptocurrency market is limited, but trading in derivative financial instruments and stocks within the crypto industry continues to grow. Russian citizens are moving around $5.000 billion on cryptocurrency exchanges a year. Although the figure is tiny, the expectation of further growth in the value of cryptoassets is quickly attracting the attention of more investors and participants, which could be leading to the formation of a bubble or a pyramid scheme within the industry, according to the central entity's assessments.
“Derivative instruments and ETF units linked to cryptocurrencies are becoming more and more active. The development of decentralized financial ecosystems (DeFi) is underway. The volume of transactions of Russian citizens with cryptocurrencies, according to some estimates, reaches $5.000 billion,” the bank pointed out.
For this reason, The Bank of Russia is considering banning the use of cryptocurrencies and stablecoins as a means of payment for goods, works and services, as well as the issuance and circulation of cryptocurrencies within the territory of the Russian Federation..
Investment in cryptocurrencies
Also, the bank wants to prohibit investment in cryptocurrencies or financial instruments related to these digital assets by its financial institutions, in order to minimize the risks and threats that these assets pose to the well-being of Russian citizens and to the stability of the current system.
Mining Bitcoin and other cryptoassets
With regards to cryptocurrency mining, the country has positioned itself as one of the leaders of this activity in recent months, due to the massive migration of miners from China to other jurisdictions such as the United States, Kazakhstan and Russia. However, the bank classified the energy required by networks as “unproductive energy consumption” blockchainas the Bitcoin, to sustain its functioning and operations. Therefore, it also recommends its prohibition in the country.
At this point, although the bank notes that the energy demand of crypto mining may jeopardize the ability to supply electricity on a regular basis to its citizens and infrastructure and that it would also affect the environment, it is important to remember that miners in Russia are developing new alternatives to take advantage of wasted resources to mine cryptocurrencies sustainably. The company gazpromneft, Russia's fifth-largest oil producer, is using passive income from oil exploration to mine bitcoins on a large scale in an environmentally friendly and respectful manner.
Background to the new regulations
The Bank of Russia says that the use of cryptocurrencies poses threats to its current financial system, which has efficient payment tools capable of meeting the needs of its customers. In addition to this, behind the new measures proposed by the central entity for the crypto industry, there is the intention to suspend a medium that it considers has begun to facilitate financing for the opposition in the country, according to reported people familiar with the matter told Bloomberg Online.
«Funding of opposition and media organizations accounts for a negligible fraction of cryptocurrency use in Russia, but security services are concerned that it is a growing problem.»
Despite the Bank of Russia's clear anti-crypto stance, Russian citizens are active users of digital asset exchanges, placing the country among the leaders in cryptocurrency trading worldwide. More than 17 trillion digital wallets are held by Russian citizens, with more than $92.000 billion deposited, Bloomberg Online reported.
With its latest report, the Bank of Russia is only reiterating its long-standing stance. Roman Zabuga, PR director at BitRiver, a provider of crypto mining hosting and telecommunications services, indicated that the Russian government is unlikely to end up completely banning the entire cryptocurrency industry in the country.
At press time, the global cryptocurrency market has grown by 1,8%, showing a market capitalization of 2,11 trillions of dollars.
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