The Bank of Russia published a stunning report on cryptocurrencies calling for a ban on all operations with cryptocurrencies, as well as bitcoin mining in Russia. Later, the regulator clarified that Russians are not prohibited from buying bitcoins through foreign-based trading platforms.
The report “Cryptocurrencies: Trends, Risks, Measures”, published by the Russian Central Bank, notes the sharp growth of the cryptocurrency market in the world, as well as the active role of Russian investors on this market. The Bank of Russia mentioned the results of a poll among banking organizations, according to which the volume of transactions of Russian individuals with cryptocurrencies reached $5 billion per year (350 billion rubles), while the investments of Russian citizens in foreign securities in 2020 amounted to $4 billion.
According to the report, although now investments in cryptocurrencies do not carry serious risks for financial assets, in the future, transactions with these assets may pose a threat to the banking and financial system as a whole, in particular, increase reputational risks for banks and risks of default by customers. Thus, the Bank of Russia lists three main threats of cryptocurrencies:
- threat to the welfare of citizens
- threat to financial stability
- threat of expansion of illegal activities.
The regulator explains the high volatility inherent in cryptocurrencies by their significant concentration in the hands of a small number of owners while contributing the anonymity of the participants to the ability to manipulate the price of coins traded on exchanges.
Special attention is paid to the need to ban mining in Russia, which ranks 3rd in the world in terms of bitcoin hashrate (11.23% of computing power). According to the Central Bank, crypto mining:
- creates unproductive consumption of electricity, jeopardizing the energy provision of residential buildings,
- increases the carbon footprint and disrupts Russia’s environmental agenda,
- generates demand for infrastructure for operations with cryptocurrencies,
- creates incentives to circumvent regulation,
- creates additional demand in the hardware market, contributing to its shortage.
According to the Bank of Russia, the development and implementation of central bank digital currencies (CBDC) will help mitigate the risks of cryptocurrencies. Moreover, the regulator believes that after the launch of the digital ruble, the demand for cryptocurrencies in Russia will begin to decline:
At the press conference that followed the publication of the report, Elizaveta Danilova, director of the Russian Central Bank’s financial stability department, explained that the ban on cryptocurrency transactions applies only to the territory of the Russian Federation. Russians remain in their hands the right to buy cryptocurrencies through foreign trading platforms.