How May the Crypto Market React to a Russian Crypto Ban?

The position of the Russian regulator has become increasingly restrictive towards cryptocurrencies in 2021. By the start of 2022, we have received several reports of further legislative moves that Moscow is allegedly studying.

The positions on the issue in the country are different, and, to date, the direction of the policymakers is unclear. In this article, we provide an overview of the situation, reporting the opinion of several prominent people on this topic.

An evolving situation

At the moment, in Russia, the crypto-ban debate has two sides:

  • Pro-ban: The Russian central bank has often attacked the world of cryptocurrencies. There are also many exponents of the Russian parliament (the “Duma”) who agree with the central bank
  • Anti-ban: on the other hand, Putin has openly criticized the possibility of introducing a ban on crypto and mining.

The position of the Russian President resulted in a new proposal formulated by the Ministry of Finance. So it would seem – but the situation is still unfolding – that Moscow is now more inclined to regulate cryptocurrencies and not ban them.

The fears of the central bank

The idea of ​​the central bank is to proceed with a ban on cryptocurrencies and mining in Russia. The purpose of this move would be to eliminate the threats to financial stability created by this sector.

Like other European countries, Russia too often stresses the risk of cryptocurrencies being used for criminal activity. In particular, the authorities typically cite money laundering and the financing of terrorist activities.

Elvira Nabiullina, governor of the central bank, has been criticizing the legalization of cryptocurrencies for years. Year after year, however, the Russian government has never decided to intervene officially with a ban, and the same goes for the Duma.

This political situation appears very different from what we see in other economies, such as China. Yet, despite the indecision of the legislator, the central bank continues its anti-cryptocurrency action.

A few weeks ago, for example, the Nabiullina institute published a report on this matter. The study’s title is Cryptocurrencies: trends, risks, and regulation, and it confirms the institute’s position over the past few years.

Having read this 32-page report, we can summarize it in the following points:

  • Threats to citizens’ well-being: the risk of substantial financial losses resulting from the significant volatility of cryptocurrencies is one of the main concerns of the bank
  • Threats to financial stability: with more citizens accessing cryptocurrencies, the bank highlights the risk of contraction in the traditional credit market. Furthermore, many people could withdraw money from banks to transfer it to a crypto wallet.
  • Threats of illegal activities: as previously mentioned, the bank confirms its concerns about money laundering and financing of illicit activities
  • Other risks: Finally, the report recalls the enormous environmental cost of cryptocurrency mining.

Other opinions in the country

Although Pavel Durov, founder of Telegram, has left Russia for years, he often speaks out on issues of his native country. Durov said he fears several damages to the IT sector in Russia following the possible crypto-ban proposed by the central bank.

Durov accuses the central bank of “throwing the baby out with the bathwater”. However, the entrepreneur also stressed that no developed nation thinks of a crypto ban.

Vyacheslav Volodin, Chairman of the State Duma, has a position more similar to the Ministry of Finance. As Volodin told reporters, he expects the Duma to work on a bill to regulate cryptocurrencies in Spring 2022.

Why aren’t experts worried about a Russian crypto ban?

Several experts on the crypto market are telling the market that a Russian crypto ban may not be a disaster for the industry. To sum up their opinions, we could see the matter in two dimensions:

  • The Chinese factor: despite the increasing bans coming from China, the crypto industry proves a certain degree of resilience. Considering that Russia represents a smaller mining economy, the market is not terrified by its crypto ban threats.
  • The Western factor: more and more countries in the Western world are focusing on regulating cryptocurrencies instead of banning them like other Asian countries. Therefore, the overall crypto-friendliness trend appears to be growing.

Could the central bank hide its real purpose?

Another issue we may want to keep in mind is that the Russian Central Bank may be hiding its actual intentions. Following the Chinese example, a bank may ban cryptocurrencies from favoring its CBDC.

Considering that we are approaching the launch of the digital ruble in the country, the timing of this debate may appear suspicious. However, while CBDCs may represent an interesting monetary experiment, their differences from cryptocurrencies are evident.

As crypto users may enjoy the benefits of a decentralized, encrypted system, CBDCs do not possess any of these features.

Future developments of the story: what shall we expect?

The risk of a complete cryptocurrency Russia’s ban appears to be further away today than it was a few weeks ago. Nevertheless, Putin’s direct intervention in the debate gave a clear indication of the government’s path.

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It will be exciting to observe the evolution of the debate in the country, with the probable discussion of a bill in the Duma in the spring. We will monitor the situation and provide further details to readers on this matter.

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