Bank of Russia Seeks to Outlaw Mining and Trading of Crypto

(Bloomberg) –

Most Read From Bloomberg

The Central Bank of Russia, the third largest crypto company in the world, has proposed a comprehensive ban on the use and creation of all cryptocurrencies domestically.

The Central Bank said in a report published Thursday that cryptocurrencies bear the hallmarks of a pyramid scheme and undermine the sovereignty of monetary policy, posing a threat to the Russian financial system.

“The potential financial stability risks associated with cryptocurrencies are much higher for emerging markets, including in Russia,” the report said. “This is due to the traditionally higher propensity to save in foreign currency and an insufficient level of financial literacy.”

Mining harms the country’s green agenda, threatens Russia’s energy supply and amplifies the negative effects of the proliferation of cryptocurrencies, creating incentives to circumvent attempts at regulation, according to the Bank of Russia.

The central bank’s tough stance against cryptocurrencies is in line with that of Russia’s powerful security services, which also support banning competition domestically to prevent it from being used to fund the country’s opposition, according to two people familiar with the case.

The Federal Security Service, or FSB, has pressured Governor Elvira Nabiullina for a blanket ban as Russians use increasingly difficult-to-track payments to donate to undesirable organizations, including media resources designated as “foreign agents.” who requested anonymity because the information is not public.

Opposition and media funding accounts for a tiny fraction of the more than 7 trillion rubles ($92 billion) in assets in about 17 million digital wallets in Russia, according to People. However, the security services are concerned that the problem is getting worse, they said.

The Bank of Russia has long been skeptical of cryptocurrencies and has hinted at the need for more regulation. In December, Nabiullina said that Russian infrastructure should not be used in its circulation.

An FSB spokesperson did not respond to requests for comment.

Russia is home to a thriving mining industry, which has become an increasingly important hub after China labeled cryptocurrency-related transactions as illegal financial activity and vowed to root out digital asset mining.

How China keeps rattling crypto markets, and why: QuickTake

Russia became the world’s third largest mining company last year, according to Cambridge University data. The largest cryptocurrency mines are located in the north of the country and in Siberia, where temperatures are low and there is the possibility of cheap energy. BitRiver, Minespot, and BitCluster are among the largest in this field.

Russia already bans the use of digital currencies to make payments, but lawmakers have acknowledged the presence of digital currencies in the 2020 law as their popularity grows. Unlike in China, the ban will not apply to assets held by Russians abroad and those with offshore bank accounts will be able to trade cryptocurrency.

As the debate over cryptocurrencies rages in Russia, the speaker of the lower house of parliament, Vyacheslav Volodin, said this week that creating a regulatory framework will be a priority at the spring session of the State Duma. Any ban must first be passed into law before it can take effect.

The push to ban cryptocurrencies comes amid a widespread crackdown on the anti-Kremlin opposition and independent media following the arrest of Alexei Navalny a year ago. Russia has also imposed heavy fines on foreign technology companies for failing to remove content as President Vladimir Putin faces off against the West in a European security crisis that could escalate into open conflict.

Navalny’s network of offices, which Russian authorities banned last year as “extremists”, continue to accept bitcoin donations. A wallet listed on its website has received $4 million in cryptocurrency over the past five years, according to Blockchair, the blockchain search engine.

Putin, Poison and the Importance of Alexey Navalny: QuickTake

Leonid Volkov, Navalny’s chief of staff, did not respond to a request for comment.

The news site Meduza also accepts cryptocurrency donations. Meduza was designated a foreign agent in April, forcing it to post a massive disclaimer on all publications and meet strict financial disclosure rules.

It has received two large donations of cryptocurrency and several small donations, according to Meduza publisher Galina Timchenko.

“We do not disclose our numbers, but I can say that they represent about 3% of our total donations,” Timchenko said. “In other words, it’s not really much.”

Most Read Bloomberg Businessweek

© Bloomberg LP 2022

Leave a Comment