The Russian economy ministry is pushing back against the nation's planned ban on cryptocurrency.
In a letter to the country’s parliament, the nation's Ministry of Economic Development criticized a package of draft bills recently introduced by lawmakers. If passed, Russia would at last have its first regulatory regime for crypto and digital assets – but would also effectively ban any businesses facilitating crypto transactions.
According to the Russian newspaper Kommersant, which obtained the letter, the ministry points out that people will still be able to buy crypto assets elsewhere, but the current version of the bills would not allow the government to protect their rights. Crypto-oriented businesses would also be driven outside of the country, harming the economy.
Instead, the new rules should take a different approach and work on creating a “controllable cryptocurrency market” in Russia, the ministry argues, according to the report.
The regulatory landscape around cryptocurrency has been quickly shifting across the world in the last year, with authorities and regulators paying closer attention to the industry, and the industry looking for ways to comply (or occasionally not). Yet, while Russia is a significant crypto market and the motherland of many blockchain developers, it has opted for an ultra-conservative approach, led by the country’s central bank.
The more conciliatory stance on cryptocurrency from a government ministry, however, might be a sign Russia could yet tone down its hostile approach, which recently led to a loud outcry from the local crypto industry.
The draft legislation, introduced in late May as a supplement to the previous bill on digital assets, deems illegal any activities facilitating the issuance of, and operations with, virtual currencies and if Russian servers or websites registered by Russian providers are used.
This includes purchasing crypto for fiat currency and accepting it as a payment. However, owning crypto is legal if it’s inherited, transferred as a result of bankruptcy proceedings or seized as a result of a court decision. Also included is the potential to issue digital securities, but that must be done under the full control of the central bank.
“The Bank of Russia does not understand how to control crypto. Rule number one: if you can’t control something, ban it,” a source in the cryptocurrency mining industry, who participated in the working group drafting the bill and asked not to be named, told CoinDesk.
For many crypto businesses, the bills would not actually change much, the source added, as even now, exchanges and over-the-counter services with Russian origins prefer to register in other jurisdictions. And large amounts of cryptocurrency in the country are often purchased for cash.
Sarkis Darbinyan, an IT-focused attorney at Moscow-based law firm the Digital Rights Center, believes that if the law is passed inits current form, cryptocurrency in Russia is going to go from the grey zone “into the darkness of the digital underground.”
Under the draft law, he continued, crypto owners would have to report their holdings for tax purposes, and that information would be readily available for the country’s law enforcement agencies. “In the Russian reality, only a crazy person would choose to keep the police posted about the state of their crypto accounts,” Darbinyan said.
Threat to miners
The proposed regulation looks problematic for Russia's crypto miners, too. While mining is not explicitly mentioned in the draft, the draft bills' ban on the digital asset “issuance” is likely to cover the sector.
“This draft has been in the works for three years. We suggested some options to legalize crypto mining back in 2019 that was a lot of work, but it all got thrown out the window,” the industry source said,. The mining industry in Russia is yet not big enough to have strong lobbyists to help push their case, they added.
Compounding matters, miners can’t be as nimble as over-the-counter brokers in shifting to other jurisdictions because relocating a building full of mining machines is a much greater logistical problem than moving an office.
However, bigger mining entities in Russia, which tend to keep their businesses secret, might have a quick and easy fix for their pending legal troubles. “You register a company abroad, say, in Hong Kong. This company puts the miners in a data center in Russia, and the Russia-registered company is not issuing crypto,” the source said.
But not everyone can afford such tricks, and small miners may be forced to close or operate illegally. “Everyone who has less than $50,000 worth of mining equipment will be swept out of the market into the black – not even grey – zone,” they warned.
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