Cryptocurrency in Russia: prohibition cannot be regulated

Publication date: 16 Feb 2022

On 20 January 2022, the Bank of Russia published a report “Cryptocurrency Risks and Possible Regulatory Measures: A Report for Public Consultation”. This document proposed a total ban on all cryptocurrency transactions in the country.

• Even if you are just starting to get interested in crypto, be sure to read this curious document: it describes not only the risks, but also all the basic concepts, main trends, ways of acquisition, dynamics and much more! 

The idea proposed by the Central Bank has caused a real uproar in the mass media and on social media, with a lot of comments, opinions and outrage. Let’s find out what is going on in this sphere and whether there is a future for crypto in Russia.

• At the end of 2021, 3Snet published “What awaits the crypto industry in 2022?” We’re already wondering which predictions will come true!

Why should cryptocurrencies be banned in Russia? The regulator cited significant risks to the Russian financial market from the use of digital currencies as the reason for the proposal from the Central Bank.

NB: the alleged ban would apply to the issuance, circulation and exchange of cryptocurrencies (including cryptocurrency exchanges, P2P platforms). The ban applies to domestic transactions, while investors from Russia will be allowed to own crypto and conduct transactions on foreign markets.

Why shouldn’t crypto be banned in Russia? The Ministry of Finance immediately reacted sharply and stated that the ban and lack of regulation would destabilise the country’s economy and lead to a spike in fraudulent activities.

Eventually, Russian President Vladimir Putin expressed his opinion. On January 26, he ordered all interested agencies (Cabinet of Ministers, Central Bank of Russia, Prosecutor General’s Office, Ministry of Economic Development, Ministry of Finance) to find the best solution, consider all opinions and create a “roadmap”.

What is the cryptocurrency roadmap in Russia? It is a document that will determine the status of all players in the cryptocurrency market of the state, the order of registration, functioning, responsibility for violations (illegal turnover, lack of declaration) in the circulation of digital decentralized currencies.

• It is planned that the creation of the document on crypto regulation in Russia will take into account all the positive experience of other countries. Read more about how digital currencies are regulated around the world!

What is already known about cryptocurrency regulation in Russia? 

On 8 February 2022, the Russian government approved a new document entitled “Concept for Legislative Regulation of Mechanisms for Organizing the Circulation of Digital Currencies”.

• The Ministry of Digital Development, the Ministry of Finance, the Central Bank, the Financial Monitoring Service, the Tax Service and the Prosecutor General’s Office will control the circulation of cryptocurrencies in Russia.  
• Cryptocurrency holders will be divided into qualified and unqualified (learn more about the difference between them, as well as What is a protection against reckless investments in Russia?). Mandatory verification using an algorithm to identify unqualified investors will be conducted for transactions over RUB 600, 000.
• Full identification will be required for holdings. This will necessitate the introduction of new licences for banks and financial institutions, as well as the development of new rules for their interaction with the Central Bank.
• All cryptocurrency transactions are proposed to be conducted through Russian banks.
• Regulation would have to be brought in line with the standards of the Financial Action Task Force – FATF.
• The registration of crypto platforms in Russia will be done in the same way as the registration of online companies. On 3 February 2022 Atomyze LLC was the first organisation to be included in the register of operators of information systems that issue digital financial assets (DFAs). The Bank of Russia described the platform as compliant with current legislation.

Who and what taxes will pay for crypto in Russia?

The Russian Cryptocurrency and Blockchain Association has proposed a taxation scheme for the digital currency industry: charge traders 13% of income and miners 20%.   No taxes are expected to be imposed on cryptocurrency buyers.

Earlier, Vladimir Gutenev, head of the State Duma’s Industry Committee, made his proposal: the income tax rate should be 15% for cryptocurrency withdrawals in traditional currencies. A 6% income tax on all business entities could also be introduced.

How much money have Russians invested in crypto?

The Bank of Russia presents an analysis of Russian citizens’ participation in the cryptocurrency market in its paper.

• According to Chainalysis (September 2020), Russia ranked second in 154 countries according to the Global Crypto Adoption Index (Ukraine in first place, Venezuela in third). This means that there is a high level of cryptocurrency use in the country.
• According to the International Monetary Fund’s Global Financial Stability Survey (October 2020 to June 2021), Russia was among the leaders in the number of visits to the Bitfinex (1st place), Binance (2nd place), Bithumb (2nd place) and Huobi (5th place) crypto exchanges. The share of Russian users on different crypto exchanges varies from 7 to 14.5%.

According to (early 2022) crypto-asset price tracking service CoinMarketCap, the global cryptocurrency market capitalisation is around $1.75 trillion. The Russians’ share of investments is about 12% – that is, $210 billion.

The cryptocurrency payment support company TripleA cites these figures: about 17 million Russian citizens have investments.

In December 2021, Anatoly Aksakov, head of the State Duma’s Financial Market Committee, spoke about the Russians’ expected investments. He specified that Russians have invested 5 trillion rubles in the crypto market.

“But it’s impossible to name the exact amount of Russian citizens’ investments in various cryptocurrencies. This is due to the fact that cash can be used to purchase, Russians use the citizenship of another country or open a cryptocurrency wallet in someone else’s name,” said Alexander Filatov, co-founder of TON Labs.

In January 2022, the All-Russian Public Opinion Research Center (VTsIOM) conducted a survey. It turned out that only 17% of respondents have a good understanding of what “bitcoin” is. Another 64% had at least “heard something about it”. 

When it comes to the regulation of Russian crypto, opinions were equally divided: an equal number of people (32% each) both support and oppose the idea of a total ban on cryptocurrency transactions. 33% of Russians are completely indifferent to this issue.

Who can buy bitcoins in Russia?

In the opinion of Russians:

• 81% – have never wanted to buy bitcoin;
• 56% – buying bitcoin in Russia is a bad investment;
• 38% – bitcoins are well protected and difficult to steal;
• 42% – anyone can buy bitcoin in Russia;
• 24% – only certain people can buy crypto;
• 22% – buying crypto is a good investment for regular money
• 16% – would like to buy cryptocurrency someday
• 15% – buying digital currency in Russia is illegal
• 4% – have had actual experience of buying crypto. of them have ever purchased digital coins.

The future of cryptocurrency in Russia: forecasts and trends

The newly adopted concept is a positive signal. Firstly, almost everyone involved in the discussion has already come to the main point: a ban on mining and cryptocurrency circulation will have a negative impact on many areas of the economy. But the industry needs urgent and precise regulation, as it can bring a decent income to the country’s budget if it is handled correctly.

Also, in favor of the fact that crypto in Russia will be regulated, rather than banned, are some of the statements made by the country’s President Vladimir Putin. For example, he immediately supported the position of the Ministry of Finance that a ban would destroy the economy of the Russian Federation. In addition, he said that mining could be useful in regions where there is an overabundance of electricity (Irkutsk region, Krasnoyarsk Territory and Karelia).

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