Crypto Threatens Financial Stability
According to Reuters on Thursday (January 20, 2021), Russia’s central bank in a report, has stated that cryptocurrency was highly volatile and is mostly used for fraud and other illegal activities. The apex bank also noted that crypto posed a risk to financial stability and monetary sovereignty.
A statement from the draft proposal said:
“The breakneck growth and market value of cryptocurrency is defined primarily by speculative demand for future growth, which creates bubbles. Cryptocurrencies also have aspects of financial pyramids, because their price growth is largely supported by demand from new entrants to the market.”
The Bank of Russia also proposed prohibiting financial institutions in the country from facilitating cryptocurrency transactions. Furthermore, the proposal also seeks to ban the operation of crypto exchanges and over-the-counter (OTC) trading desks in Russia.
Meanwhile, the latest development coming out of Russia is not entirely surprising, considering the government’s attitude towards cryptocurrency in recent times. Back in 2020, President Vladimir Putin signed a law to ban the use of crypto for payments in the country. The law also barred government officials from owning cryptocurrency.
Also in 2020, there were draft bills submitted to the State Duma, Russia’s parliament, which sought to amend the Code of Administrative Offenses and the Criminal Code. The proposals suggested hefty fines and prison sentences for crypto violations and use of digital assets for payment of goods and services.
However, in October 2021, Putin acknowledged the cryptocurrency’s value, but said that it was too early to consider the crypto as a dollar replacement for oil trades.
Despite Russia’s negative cryptocurrency sentiment, it has not deterred citizens from engaging in the industry. The central bank stated that Russians conduct $5 billion worth of cryptocurrency transactions annually.
Russia Following China’s Footstep in Crypto Mining Ban
The Bank of Russia also called for a ban on domestic cryptocurrency mining, citing the high energy consumption involved in the mining activity. Russia became the world’s third-largest crypto mining country, following China’s draconian ban.
However, the draft proposal noted that mining led to the creation of more cryptocurrencies, driving up demand for crypto services. Also, such energy intensive activity affected electricity supply and threatened Russia’s green energy agenda.
China started to clampdown on the Bitcoin mining industry back in 2021, eventually leading to a massive exodus of miners to friendlier jurisdictions such as the U.S. and Kazakhstan.
As previously reported by Blockster, the U.S. became the number one country in global bitcoin mining hashrate, displacing China, with Kazakhstan taking the number two spot and accounting for 18% of the global hashrate in August 2021.
However, recent activities in Kazakhstan do not seem to favor mining activities in the country. Earlier in January, the central Asian country experienced an internet blackout amid the ongoing anti-government protests. The blackout severely affected bitcoin mining operations.
