RIO DE JANEIRO, BRAZIL – Russia’s central bank intends to prohibit the use and mining of cryptocurrencies, arguing that they could be used to threaten its monetary policy sovereignty and the country’s financial stability.
The proposal, which is in line with the CBR’s hard line stance on digital assets, comes after the regulator sought to bar investment in cryptocurrencies in the country. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses. If approved, it wouldn’t penalize old purchases of cryptocurrencies.
In a report titled “Cryptocurrencies: Trends, risks, measures”, the central bank said cryptocurrencies carry the hallmarks of a Ponzi scheme, warning of potential bubbles in the market.
Russia’s Apex bank also voiced concerns about risks to financial stability due to the high volatile nature of crypto transactions. According to its estimates, the annual volume of crypto transactions in the country is around US$5 billion.
“The Bank of Russia has hinted at the possibility of a sweeping ban on crypto many times before so this recent development is hardly surprising. Importantly, the ban will also outlaw any crypto mining activities. As this would negatively affect Bitcoin’s hash rate, some investors may be wondering whether the ban, when enforced, could result in more selling pressure on the price of this asset,” said Anto Paroian, Chief Operating Officer at cryptocurrency hedge fund ARK36.
Further explaining its unfavorable stance against cryptocurrencies, the regulator argued that they could be used to fund terrorism and result in money laundering.
The Bank of Russia is reportedly discussing with market players and industry experts in connection with the possible prohibition. The proposed ban extends to OTC trading desks, crypto exchanges as well as P2P platforms.
“Potential financial stability risks associated with cryptocurrencies are much higher for emerging markets, including Russia. Crypto mining creates a non-productive electricity expenditure, which undermines the energy supply of residential buildings, social infrastructure, and industrial objects, as well as the environmental agenda of the Russian Federation,” the report states.
The impetus for the regulation of crypto mining is driven by mounting concerns that Russia has become a major destination for crypto miners after China’s recent crackdown.
“This, however, is unlikely to happen. Russia only hosts a little more than 10% of Bitcoin’s current mining power. When and if the ban is finally enforced – which could still take some time – Russian miners may be forced to move their operations elsewhere but any effect of this development on Bitcoin’s price will be extremely short-lived,” explains Paroian.
Russian President Vladimir Putin said earlier that cryptocurrencies have a “potential future” as a means of payment. The Russian leader pointed out that crypto money finds more real-world use cases. However, Putin was less sure about the fundamentals that were driving the valuations of cryptocurrencies like Bitcoin.