Regulation
bne IntelliNews – Russia prepares a crackdown on cryptocurrencies
Russia is preparing a crackdown on cryptocurrencies in a bid to establish control over the segment that has so far operated largely under the radar.
The State Duma, the lower house of the Russian parliament, is currently considering a bill on the regulation of cryptocurrencies in Russia. The document provides for a total ban on the organization of cryptocurrency circulation starting from September 1, 2024, making exceptions only for miners and projects officially registered by the Russian Central Bank.
According to the project, only Russian companies and individual entrepreneurs included in a special register will be able to mine cryptocurrencies. Private individuals will be able to mine cryptocurrencies without being registered, provided they comply with government-set energy consumption limits, which could discourage them from mining.
The bill also prohibits the advertising of digital currencies and the organization of their circulation.
Control over cryptocurrencies
According to the new law, Russian miners will be obliged to declare to the tax service the total amounts of cryptocurrencies they have mined, also providing the crypto addresses on which the mined currency was deposited.
The purpose of this clause is to eliminate the possibility of using these funds “for money laundering, terrorist financing or other criminally punishable acts”, the lawmakers say. Furthermore, authorities will have the right to completely ban cryptocurrency mining in specific regions of the country.
In the summer of 2023, the Russian Ministry of Finance had already proposed to ban the organization of cryptocurrency circulation with the exception of stablecoins and the sale of coins by miners.
However, the initiative was blocked by the Russian secret services, the FSB, and by the investigative committee.
The current bill was submitted to the State Duma some time ago, but for legislators it seemed to have a lower priority. Now, however, Russian authorities are accelerating the bill to take control over the circulation of cryptocurrencies amid problems with settlements in foreign economic activity, which arose due to sanctions imposed after the outbreak of war in Ukraine.
The Finance Ministry, central bank and the country’s Financial Monitoring Service said they expect the law to be passed before the end of the spring session of the State Duma.
“The purpose of the bill is to civilize the cryptocurrency market in Russia, admitting only bona fide participants, those who do not raise questions to the regulator,” said Anatoly Aksakov, chairman of the Duma Financial Markets Committee of State. from the Russian edition of Forbes.
“It is also important that gaps in the legislation prevent cryptocurrency from being used in Russia for dubious financial transactions, payments for drug trafficking, terrorist financing and so on,” he added.
According to data from the Russian Ministry of Finance, Russia ranks third in the world in terms of cryptocurrency mining capacity. The total value of the two major cryptocurrencies, Bitcoin and Ether, mined in the country in 2023 is estimated to be around $5 billion. The activity of cryptocurrency miners under government control would bring significant revenue to the country’s budget.
More power for the regulator
Another reason why the State Duma is accelerating the bill is the Russian central bank’s plans to use cryptocurrencies in international payments. In a situation where Russian banks are hit by sanctions following the invasion of Ukraine in February 2022, international cryptocurrency payments look like a promising direction to explore, and the regulator plans to soon launch a test platform for such payments.
The vice-president of the regulator, Olga Skorobogatova, said earlier that, according to the adopted law, digital assets can be used in cross-border deals without experimental legal regimes, and the regulator has already received three requests from companies that would like try it.
According to Aksakov, the new regulation of cryptocurrencies will improve the international payments system of Russia, hit by Western sanctions.
Meanwhile, the central bank appears to be eager to embrace cryptocurrency payments.
“We have long agreed on the use of digital currencies for foreign economic deals,” head of the regulator Elvira Nabiullina said in her speech to the State Duma last month. “I think it would be desirable to adopt this regime more quickly, work it out, see what can be introduced into legislation and what cannot.”
Problems with the proposed regulations
Observers and the Russian crypto community have reacted critically to the cryptocurrency law, expressing fears that it could hinder the development of a legitimate crypto segment in Russia, pushing existing operators into the gray zone and users towards foreign exchanges.
“Businesses have a general doubt about the need for such a bill,” Andrey Mikhailishin, member of the board of directors and CEO of the company Digital Payments, told Forbes. “Alternative proposals from industry representatives were also discussed at the meeting of the Council of Experts of the State Duma.”
According to Mikhailishin, alternative proposals included the introduction of licenses to allow cryptocurrency companies and individual entrepreneurs to operate legitimately in Russia, paying applicable taxes. He added that industry standards should be set by its representatives through self-regulation, but no one from the crypto community was even invited to discuss the current version of the bill.
Meanwhile, the law contains some technical irregularities that could hinder the implementation of some of its clauses.
For example, the requirement to provide identifying wallet addresses does not take into account the fact that many of these addresses can be generated for any wallet, Mikhailishin said.
Going forward
The bill represents good news for power companies that have so far struggled to prove that Russian-based cryptocurrency miners are being used for commercial purposes. The creation of the cryptocurrency miner registry is likely to solve this problem. However, the inability to take advantage of cheap electricity for much longer could put some cryptocurrency miners out of business or force them to move to another country.
However, these new regulations could deal a serious blow to the cryptocurrency exchange infrastructure, which has been active in Russia for years.
All types of “independent exchanges and exchanges” physically located in Russia will definitely end, Giorgi Okrochemdlishvili, senior analyst at ITSWM, told Forbes Russia.
Likewise, the advertising ban could seriously hamper the ability of crypto infrastructure companies to openly attract new customers and subsequent investment in crypto innovation.
Russia has around 20 million private owners of cryptocurrency wallets, mostly owned by economically active and financially secure citizens. The inability to use Russian crypto infrastructure anymore would force them to switch to foreign cryptocurrency exchanges. However, since Russia’s invasion of Ukraine in February 2022, several major global cryptocurrency exchanges have introduced restrictions for Russian residents.