On Thursday the Central Bank of Russia issued a 36-page proposal for a complete ban on the use and mining of cryptocurrencies on Russian territory. Citing threats to financial stability, citizens' wellbeing, and sovereignty over their own monetary policy, the bank proposed that Russia create mechanisms to block transactions aimed at buying and selling cryptocurrencies using Russia’s financial infrastructure.
According to the report, the value of cryptocurrencies is “defined primarily by speculative demand for future growth, which creates bubbles,” and that they “have aspects of financial pyramids, because their price growth is largely supported by demand from new entrants to the market.” The ban would stop cryptocurrency issuance and operations, block banks from investing in cryptocurrencies, block exchanging crypto for traditional currency, and introduce legal liability for using crypto to purchase items. The proposal does not call for a ban on owning cryptocurrencies abroad, but says that regulators should track the holdings of citizens who do so.
The proposed ban also seeks to eliminate crypto mining on Russian territory. The bank’s report expressed worries that crypto mining threatens their attempt to decarbonize and poses risks to their energy infrastructure. Russia’s rich natural resources, cheap electricity, cold temperatures, and proximity to China made it a hot spot for miners relocating following China’s ban on mining last summer. Indeed, last October, Russia’s Irkutsk region (located 1,700 km from China) reportedly saw a 160% year-over-year rise in energy consumption. In response to this migration, the Russian Ministry of Energy, Nikolai Shulginov, introduced special electricity tariffs for cryptocurrency miners last fall. The current proposal goes a step further, seeking to ban mining altogether.
According to research from the University of Cambridge, as of July 2021 Russia ranked third in global hashrate on the bitcoin mining network, contributing 11.2% of hashrate, behind only the United States and Kazakhstan. Immediately prior to the Chinese mining ban, Russia contributed just 8.9% of global hashrate. If Russia’s regulatory bodies move forward with the proposed ban, we may see another large east-to-west redistribution of hashrate.
According to two unnamed sources cited by Bloomberg, “the central bank’s hard line against crypto dovetails with the position of Russia’s powerful security services, which also backs a complete ban domestically, to prevent it from being used to fund the country’s opposition.” Elizaveta Danlova, head of the central bank’s financial stability department, stated Thursday “as for the [Federal Security Service or FSB], the Bank of Russia has been saying for a long time that we consider the risks of cryptocurrencies to be high. This is our position. But at the same time, we are pleased if other organs share it.”