Can Russia ban influence the crypto market?

With Russia’s Central Bank proposing a total ban on the mining and use of cryptocurrencies on Russian territory, is it time to rethink your current strategy?

According to the bank, cryptocurrencies posed a threat to financial stability, citizens’ wellbeing and the country’s monetary policy. Russia is the third-largest country in crypto mining, just behind the USA and Kazakhstan, accounting for 11.2% of the global hash rate in August 2021.

What is the proposed ban?

This “crackdown” style of rhetoric has been consistent for several years due to claims that the use of cryptocurrencies could be used for money laundering or to help finance terrorism. The country only made them legal two years ago. However, they still banned their use as a means of payment.

In their latest report, the Central Bank discussed a “speculative” demand, which fuelled cryptocurrencies’ rapid growth. Many currencies were characteristic of a financial pyramid, risking potential market bubbles and threatening financial stability. Interestingly, despite the proposed ban, the country is still rolling out the Digital Rouble, a digital currency, with plans to launch the complete prototype early this year. The proposed decision follows China and South Korea’s similar bans, although China’s is widely regarded as being temporary.

What was the impact on the markets after the statement?

The impact was felt across digital currencies almost immediately with a $600 drop in Bitcoin soon after the announcement, although the disquiet was short-lived, as the currency recovered shortly afterwards.

What does the ban include?

The proposed ban wasn’t just about mining and crypto use. It also included crypto exchanges; this is despite the well-known exchange Binance telling Reuters it was committed to working with the country’s regulators and was releasing a report that could help foster dialogue with the central bank, helping to protect the interests of Russian crypto users. However, the proposals would not apply to assets held abroad by Russians. Elizaveta Danilova, the central bank’s financial stability department head, said at an online briefing last week, adding that Russians with offshore exchange accounts will be able to trade cryptocurrencies as usual.

What is the feedback from Russian based miners?

Moscow based BitRiver, who operates data centres in Siberia that host large quantities of crypto miners, said “it did not consider a complete crypto bank likely”, instead they “expect a balanced position to develop, once the different ministries had discussed the proposals made by the central bank”. Bitcluster’s Co-Founder Vitaliy Borschenko reportedly stated that “the centralbank’s main concern is the cryptocurrency won’t be traded in Russia and [mining] poses no risks in this regard”.

Our thoughts

With Russian Finance Minister Anton Siluanov previously stating that “cryptocurrencies are real. There is no sense in banning them, there is a need to regulate them”, we think that a full-scale permanent ban is unlikely. You may want to consider your position in the short to medium term were a complete ban to come into place, as we’ve seen it, can impact the markets. However, with the previous rebound, only time will tell the real impact once Russia’s position becomes clear.

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