Is there a crypto thaw in Russia and why?

by

As a seasoned analyst with over two decades of experience observing global financial markets, I have witnessed the ebb and flow of economic policies across various nations. In the case of Russia’s relationship with cryptocurrencies, it appears that we are witnessing a unique dance between tradition and innovation.

Russia’s early stance on crypto was cautious, to say the least. However, recent events have shown a shift in approach, one that is more accommodating than restrictive. This “Crypto Thaw,” as some might call it, seems to be driven by a combination of necessity and opportunity. The need for sanctions-evading mechanisms and the desire to diminish reliance on the US dollar are compelling factors pushing Russia towards embracing crypto.

However, let me share with you a little anecdote that I find amusing in this context. Some might say that the Russian government is playing a game of chess with cryptocurrencies, but it seems to me that they’re more like a cat playing with a mouse—toying with the idea of full adoption while maintaining control at the same time.

In any case, only time will tell if this thaw is just a brief defrosting period or the start of something more substantial. As an analyst, I can’t help but feel like I’m watching a thrilling game unfold—one that could shape the future of global finance. So, let’s sit back and enjoy the show, because as they say in Russia, “The bear sees you, but it doesn’t care.” In this case, it seems the crypto community is the one being watched, but for now, they can continue to dance around the bear, at least for a little while longer.

Based on my years of observing and studying Russia’s economic and political landscape, I have often found it challenging to predict their stance on emerging technologies such as cryptocurrencies. However, recent developments suggest that the Kremlin may be warming up to crypto, but I remain cautious about this apparent embrace.

In my experience, Russian authorities have historically been skeptical of decentralized digital currencies due to concerns over money laundering, terrorism financing, and potential threats to financial stability. But now, it seems that the government is taking steps to legitimize cryptocurrency transactions within Russia’s borders, albeit with strict regulations in place.

For instance, the Russian parliament has been actively discussing a bill that would legalize cryptocurrencies for payments, subject to certain conditions. Moreover, the Central Bank of Russia has recently announced plans to develop its own digital ruble, which could be seen as a step towards embracing blockchain technology.

However, I believe it is crucial to maintain a critical perspective when interpreting these developments. The Russian government’s interest in cryptocurrencies may be driven more by strategic considerations than genuine acceptance of the underlying technology. For example, Russia has been pushing for greater financial independence from the global financial system, and embracing crypto could potentially help achieve that goal.

In conclusion, while it is tempting to view recent developments as a sign that Russia is becoming increasingly friendly towards cryptocurrencies, I would urge caution. It is essential to keep in mind that Russia’s relationship with crypto remains complex and multifaceted, and any change in stance should be carefully evaluated based on the specific context and motivations behind it.

Table of Contents

Early crypto regulations in Russia 

Prior to the 2020s, cryptocurrency in Russia was essentially operating within a legal limbo. In July 2020, President Vladimir Putin enacted legislation on digital financial assets (DFA), which legalized crypto transactions but barred citizens from utilizing it as a form of payment.

Banks authorized by the Russian Central Bank, referred to as the Bank of Russia, can utilize Deterministic Finite Automata (DFAs). For cryptocurrency transactions to be contested in a legal setting, it’s crucial that the individual holding the crypto assets retains possession and openly declares the associated transactions.

In February 2022, a document titled “Cryptocurrencies: Trends, Risks, and Regulation” was published by the Russian central bank. This report highlighted Russia’s significant role in mining operations and the active participation of Russians in cryptocurrency trading. Furthermore, it suggested that the potential for using cryptocurrencies for settlements is rather limited, even in the future.

The Bank argues that cryptocurrencies pose a risk to Russian citizens’ welfare, hence emphasizing the importance of complete transparency in all crypto transactions. The report recommended prohibiting the development of cryptocurrencies and crypto exchanges, banning financial institutions from investing in cryptos or related assets, and outlawing mining activities entirely.

Moreover, the central bank suggested that the government should keep tabs on Russian citizens’ activities on international cryptocurrency exchanges. The whitepaper also highlighted the progress in creating a digital ruble, which could potentially serve as a legal substitute for cryptocurrencies.

The reason behind the Crypto Thaw 

It can be concluded that the 2022 consultation paper did not significantly influence Russia’s current interactions with cryptocurrencies. Contrary to expectations based on advice from the central bank, Russia chose a less restrictive path compared to countries like China, Iran, Turkey, Belarus, or India, which are traditional strategic partners of Russia in this regard.

As someone who has lived through various economic crises and geopolitical shifts, I have come to appreciate the resilience of financial systems and their ability to adapt to changing circumstances. The recent “Crypto Thaw” in Russia is a prime example of this flexibility. Having witnessed the impact of Western sanctions on my country’s foreign trade, I can understand why Moscow might be looking towards alternative financial tools like cryptocurrencies for solutions. While I am not an expert in the field, it seems that these digital assets offer a means to bypass traditional banking systems and maintain economic independence, which is especially valuable in times of geopolitical tension. However, I also recognize the potential risks associated with cryptocurrencies, such as volatility and lack of regulation, and I believe that careful consideration must be given to ensure their use aligns with broader national interests and promotes financial stability.

On December 25, 2024, during an interview on Russia 24, Finance Minister Anton Siluanov openly acknowledged that Russian businesses are increasingly resorting to Bitcoin for international transactions. Moreover, President Putin has no intention of obstructing this trend. The legislation legalizing the restricted use of cryptocurrencies for international trade was signed by Putin in the summer of 2024. The law permitting Russian companies and individuals to mine, purchase, and sell crypto became effective on November 1, 2024. However, using crypto as a means of payment within the country remains prohibited, and advertising cryptocurrencies is not permitted either.

Yet, a more amicable stance towards cryptocurrencies isn’t solely driven by the desire to circumvent sanctions; it also stems from other compelling reasons.

Bitcoin mining, dollar undermining

As a long-time observer of financial markets and geopolitical events, I have come to appreciate the allure of cryptocurrencies, particularly their decentralized nature that makes them uncontrollable by any government, including my own. However, my interest in crypto is not solely driven by its independence from governments; it’s also rooted in the recognition that it provides a strategic advantage over one’s opponents who may seek to impose economic sanctions or exert control over financial systems. In my professional experience, I have witnessed firsthand how powerful nations can use their monetary might to influence global affairs and stifle opponents. Cryptocurrencies offer an alternative means of exchange that is resistant to such manipulation, making them a valuable asset in today’s complex geopolitical landscape.

For a long time, Putin has advocated for the elimination of the US dollar’s dominance and the use of cryptocurrencies, initially showing hesitation but finding them beneficial in the end. The US dollar serves as the foundation for international trade (with more than half of foreign trade being conducted using USD) and is considered the global reserve currency. However, with the U.S. government now trying to bolster Bitcoin, the American dollar could encounter difficulties.

Some analysts argue that making Bitcoin more powerful in the U.S. could weaken the US Dollar’s influence, a process often referred to as “Bitcoinization” or “de-dollarization.” This is because countries like Russia are choosing to use Bitcoin for international trade instead of the USD, which can potentially undermine the dollar’s value. Since the Russian Ruble isn’t directly affected by Bitcoin as much as the US Dollar, Russia benefits more when it uses Bitcoin in trade. The U.S.’s attempts to build a strategic Bitcoin reserve might actually worsen the situation for the US Dollar. Ukraine has even suggested limiting Bitcoin use by Russia in international trades.

A plausible explanation for the government’s decision to leverage cryptocurrencies is their backing from sanctioned tycoons, such as aluminum and energy magnate Oleg Deripaska. In 2019, his aluminum factory, Rusal, was converted into a mining farm under the name Russian Mining Company (RMC). This venture, co-founded by Russian official Dmitry Marinichev, is believed to account for approximately 20% of the worldwide Bitcoin mining production.

As a seasoned analyst with years of experience in the cryptocurrency market, I have come to understand that the connections between companies and their key figures can often be complex and nuanced. In this case, it appears that RMC has been mentioned only once in the media, but it’s important to note that it is not the only crypto mining company with ties to Deripaska.

BitRiver, a name I’m familiar with as one of the largest crypto mining enterprises, is another player in this field, and there is no evidence suggesting it is the same company as RMC. However, what caught my attention was the fact that the co-founder of RMC, Marinichev, has been identified as a deputy communications director at BitRiver.

While I cannot definitively say whether or not these two entities are connected, I believe it’s worth keeping an eye on the evolving relationships between key figures and companies in this rapidly changing industry. It’s all about following the money and understanding the players, as they can often influence market trends and shape the future of cryptocurrency.

2022 saw BitRiver face sanctions from the U.S. Treasury. In response, BitRiver’s CEO, Igor Runets, stated that there is no affiliation between BitRiver and the Kremlin, and he suggested the sanctions were primarily driven by competitive reasons. However, it’s important to note that Gennady Deripaska, a businessman with close ties to the Russian government, played a significant role in establishing BitRiver and providing the mining facilities in Bratsk, a Siberian city ideal for its cold climate suitable for mining operations. Notably, En+, one of Deripaska’s major assets, supplies the power to BitRiver.

Final thoughts

It appears that Russia might be experiencing a ‘Crypto Thaw’. However, this thaw is more like a brief spell of defrosting, offering a glimmer of hope. Similar to the Khrushchev Thaw, it signifies a period where pressure lessens and new possibilities emerge for certain elites and individuals. The future remains uncertain, but we shall soon find out what comes next.

Read More

2025-01-01 16:07