Page 27 - bne monthly magazine June 2024 Russian Despair Index

bne June 2024 Companies & Markets I 27
In the summer of 2023, Russia's ministry of finance already proposed to prohibit the organisation of the circulation of cryptocurrencies with the exception of stablecoins and the sale of coins by miners.
However, the initiative was blocked by Russia's secret service FSB and the investigative committee.
The current bill was introduced in the State Duma some time ago but appeared to be a lower priority for legislators. Now, however, Russian authorities are rushing the bill to take over control over crypto circulation amid problems with settlements in foreign economic activity, which arose due to sanctions imposed after the outbreak of war in Ukraine.
The finance ministry, the central bank and the country's financial monitoring service have said that they expect the law to be passed before the end of the State Duma's spring session.
"The purpose of the bill is to make the cryptocurrency market in Russia civilised, admitting only bona fide participants,
those who do not raise questions with the regulator," Anatoly Aksakov, chairman of the State Duma's committee for financial markets, was quoted as saying by the Russian edition of Forbes.
"It is also important that lacunas in the legislation prevent cryptocurrency from being used in Russia for dubious financial transactions, payment for drug trafficking, terrorism financing and so on," he added.
According to data from the Russian finance ministry, Russia ranks third in the world in terms of crypto mining capacities. The total value of the main two cryptocurrencies, Bitcoin and Ether, mined in the country in 2023 is estimated to
be about $5bn. The operation of crypto miners under government control would bring significant revenue to the country's budget.
More power for the regulator
Another reason why the State Duma is rushing the bill is the Russian central bank's plans to use crypto in international payments. In a situation when Russian banks are hit by sanctions following the invasion of Ukraine in February 2022, international payment with crypto looks like a promising direction to explore, and the regulator plans to launch a test platform for such payments soon.
The regulator's deputy chairman Olga Skorobogatova said earlier that according to the adopted law, digital assets can be used in cross-border settlements without experimental legal regimes and the regulator has already received three applications from businesses that would like to try it.
According to Aksakov, the new crypto regulations will improve Russia's system of international payments, hit by Western sanctions.
Meanwhile, the central bank seems to be eager to embrace crypto payments.
"We have long agreed to use digital currencies for foreign economic settlements," the regulator's head Elvira Nabiullina said in her address to the State Duma last month. "I think it would be desirable for us to adopt this regime faster, to work it out, to see what can be introduced into the legislation and what cannot."
Issues with proposed regulations
Observers and the Russian crypto community have reacted to the crypto bill critically, expressing fears that it will hamper the development of a legitimate crypto segment in Russia, while pushing the existing operators into the grey area and users to foreign exchanges.
"Business has a general doubt about the need for such a
bill," Andrey Mikhailishin, a board member and CEO of the company Digital Payments, told Forbes. "Alternative proposals from industry representatives were also discussed at the State Duma's expert council meeting."
According to Mikhailishin, alternative proposals stipulated introducing licences to enable cryptocurrency companies and individual entrepreneurs to legitimately operate in Russia, paying applicable taxes. He added that industry standards should be established by its representatives through self- regulation, but no one from the crypto community was even invited to discuss the current version of the bill.
Meanwhile, the law contains some technical irregularities that may hamper the execution of some of its clauses.
For example, the requirement to provide wallet identifier addresses does not take into account the fact that many such addresses can be generated for any wallet, said Mikhailishin.
Moving forward
The bill is coming as good news for electricity companies which have so far struggled to prove that Russia-based crypto miners for commercial purposes. The creation of the crypto miner registry is likely to close this issue. However, the inability to take advantage of cheap electricity any longer may drive some crypto miners out of business or force them to relocate to another country.
Still, these new regulations are likely to deal a hard blow to the crypto exchange infrastructure, which has been active in Russia for years.
All kinds of "independent exchanges and exchangers" physically located in Russia will definitely come to an end, Giorgi Okrochemdlishvili, a senior analyst ITSWM, was quoted as saying by Forbes Russia.
Russia has an estimated 20mn private owners of cryptocur- rency wallets, but inability to use the Russian crypto infra- structure would force them to switch to foreign exchanges and most of these have cut Russians off since the invasion of Ukraine in 2022.
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