Author: Deng Tong, Golden Finance
After the 805 coin disaster, the crypto market was shrouded in dark clouds: the price of Bitcoin plummeted from more than $70,000 at the end of July to below the $50,000 mark. The panic and greed index even dropped to 17 at one point, and the level changed from fear to extreme fear. People once doubted, "Is the bull still there?"
However, starting from August 8, the crypto market seemed to have a spring breeze overnight, and cryptocurrencies generally rose. In the early morning of August 9, Bitcoin even reached $62,394.50, up 25.33% from the low of $49,781.93. The reason for the rebound in the crypto market is that one of the major factors is closely related to Russia's newly adopted mining legalization policy.
What does Russia’s new mining regulations say?
On August 8, 2024, Russian President Vladimir Putin signed a law legalizing cryptocurrency mining in Russia.
The signed law introduces new concepts, including cryptocurrency mining, mining pools, mining infrastructure operators, address identifiers, and individuals who organize mining pool activities. Mining itself is recognized as a component of turnover, not the issuance of cryptocurrency.
Only registered Russian legal entities and individual entrepreneurs are allowed to mine. Individuals who do not exceed the energy consumption limits set by the Russian government do not need to be registered to mine digital currencies.
According to the document, foreign digital financial assets can be traded on Russian blockchain platforms, and the Russian Central Bank has the power to ban individual issuances if it finds that they pose a threat to Russia’s financial stability.
Earlier, Putin discussed the introduction and use of digital currencies with the government at a meeting on economic issues. He pointed out that this is a promising economic field and Russia must "seize the opportunity" to quickly establish a legal framework and regulations, develop infrastructure, and create conditions for the circulation of digital assets.
The new mining regulation policy will be the responsibility of the Russian Central Bank, the Ministry of Finance and the Russian government cabinet, who will formulate more precise regulatory content in the coming months. The bill also prohibits large-scale cryptocurrency advertising in Russia.
The law shall come into effect ten days after its official promulgation, except for any provisions that specify a different effective date.
Russia’s legalization of mining has long been a sign
Russia’s new mining legalization bill has actually been around for a long time.
As early as December 14, 2023, the Russian Ministry of Finance proposed a new bill seeking to legalize BTC mining and establish a mechanism for selling the mined currency. The bill includes provisions prohibiting cryptocurrency advertising and requires cryptocurrency sales to be conducted through foreign platforms, excluding the use of Russian information infrastructure. Both the Ministry of Finance and the Central Bank of Russia support the recognition of cryptocurrency mining as an industry and support the use of cryptocurrencies for settlement of foreign economic activities within the framework of experiments. According to the proposed bill, cryptocurrency miners can obtain digital currencies through foreign systems or dedicated platforms established for experiments. In either case, miners must report these transactions to the Federal Tax Service. The central bank recommends that the sale of mined cryptocurrencies be limited to non-residents and can only be carried out through foreign infrastructure.
On May 6, 2024, Anton Gorelkin, Chairman of the Russian State Duma Financial Market Committee, stated that he did not support a complete ban on the circulation of cryptocurrencies in Russia. He explained in a post on Telegram that the restriction was not intended to ban the use of all cryptocurrencies, but to regulate the establishment of cryptocurrency exchange platforms within the legal framework of Russia. Anton Gorelkin also believes that the establishment of legal crypto infrastructure in Russia is affected by geopolitical realities. This requires consideration of factors related to international relations. He went on to add that allowing such infrastructure could subject Russian companies to Western sanctions. In addition, Anton Gorelkin also pointed out that this restriction may be lifted in the future, and stated that users can still use foreign cryptocurrency exchanges and over-the-counter trading services as before. However, the impact on many over-the-counter cryptocurrency services in Moscow is uncertain.
In July 2024, Russia considered including the topic of stablecoins in an upcoming bill to allow the official use of stablecoins for cross-border payments. Alexey Guznov, deputy governor of the Bank of Russia, announced that a proposal had been submitted and the issue was currently being discussed. The Ministry of Finance also confirmed this.
On July 13, 2024, BITCOINLFG revealed on the X platform that sources said Russian President Vladimir Putin may make a major statement on Bitcoin and cryptocurrency in the next few days.
On August 3, 2024, Golden Finance pointed out in a report: Anatoly Aksakov, chairman of the Russian State Duma Financial Market Committee, once predicted that at some point in the future, citizens will be able to exchange Bitcoin and digital rubles, and a P2P market based on the digital ruble will be needed to achieve this goal.
In summary, Russia has done a lot of preparation for the introduction of the new mining bill. The introduction of the new regulations was actually expected.
Turning point: Russia-Ukraine conflict, sanctions, and national competition
Russia's crypto asset regulatory policy was not very conducive to the development of the industry in the early years. So, what made Russia's attitude towards cryptocurrency change from "no support" to "mining is legal"?
On December 10, 2020, Putin signed a decree banning certain Russian officials from holding any cryptocurrencies. In December 2021, the Central Bank of Russia warned of the risks associated with digital assets and even proposed a complete ban on cryptocurrency mining and trading.
However, on February 24, 2022, the full-scale Russian-Ukrainian conflict broke out, and this war can be regarded as a turning point in Russia's attitude towards cryptocurrencies.
According to the BBC, the United States, Britain, the European Union, as well as Australia, Canada, Japan and other countries have imposed more than 16,500 sanctions on Russia since the full-scale outbreak of the Russia-Ukraine conflict.
Their main target is Russian money - $350bn (£276bn) worth of foreign reserves are frozen, around half of Russia's total foreign reserves.
The EU said about 70% of Russian banks' assets were also frozen and some were excluded from the Swift international funds clearing system, which provides secure and efficient communications services for financial institutions.
According to the International Monetary Fund, in 2022, Russia's GDP growth rate was -2.1%. In 2023, Russia's GDP growth rate was 3.6%. In 2021, before the start of the Russian-Ukrainian war, Russia's GDP was 4.7%.
It can be seen that in the centralized international financial system, Western sanctions have indeed caused Russia to suffer an economic winter. Faced with multiple rounds of economic sanctions, Russia finally chose to embrace cryptocurrency.
In 2022, Putin believed that Russia had some advantages in cryptocurrency mining, which should be taxed and regulated, and supported limiting mining to areas with excess electricity, such as Irkutsk, Krasnoyarsk, and Karelia.
On February 13, 2022, Russia amended the "On Digital Currency" Act, restricting the purchase of cryptocurrencies by non-qualified investors, requiring them to pass an exam before purchasing. Qualified investors can purchase up to $7,000 worth of cryptocurrencies per year, while unqualified investors are limited to $600. The Act also defines digital currencies as property, providing a legal basis for cryptocurrency payments.
On April 20, 2023, Elvira Naiullina, head of the Russian regulatory agency, said that the Russian Central Bank is preparing a bill that will introduce an "experimental legal system" that will allow cryptocurrencies to be used exclusively for import and export transactions. As part of the regulation, new tax laws will be introduced for miners. The central bank's plans include the establishment of a specialized organization responsible for cryptocurrency mining and processing payments for cross-border trade agreements.
In November 2023, Russia developed a tool to help crypto miners evade sanctions, which will help Russian companies make cross-border payments. Anton Tkachev, a member of the Russian State Duma Committee on Information Policy, Information Technology and Communications, said that the country's Ministry of Industry and Trade has successfully developed "a tool for conducting industrial mining activities." He claimed that cryptocurrencies can help Russian companies evade Western sanctions when trading overseas.
Russia’s central bank recently recommended that businesses use cryptocurrencies and digital assets to mitigate the impact of Western sanctions following the conflict in Ukraine. Central Bank Governor Elvira Nabiullina acknowledged that payment issues are critical to the Russian economy and stressed the role of new financial technologies in creating unprecedented solutions.
Russia's trade relations with many countries face difficulties due to sanctions against major Russian financial institutions. Nabiullina said: "New financial technologies create opportunities for initiatives that did not exist before. That is why we have relaxed our stance on the use of cryptocurrencies in international payments, allowing the use of digital assets in such payments."
On the other hand, the United States has begun to fully embrace cryptocurrencies, as evidenced by the US SEC's approval of Bitcoin spot ETFs and Ethereum spot ETFs, and the US presidential candidates' support for cryptocurrencies. The competition among countries on how to treat cryptocurrencies is becoming increasingly fierce.
US responds to Russia’s evasion of sanctions via cryptocurrency
On the one hand, Russia has found a shortcut to evade Western sanctions through cryptocurrency. On the other hand, the United States will also begin to worry about Russia's move to evade sanctions through encryption.
In July 2024, Congressman Brad Sherman (D-CA) questioned Yellen about Russia’s use of cryptocurrencies and stablecoins to evade Western sanctions. “The Central Bank of Russia has urged the use of cryptocurrencies to evade Western sanctions. There is no particular advantage to a stablecoin because it is stable, you cannot make money by holding it, and it generally does not pay interest—certainly not the interest you would earn on a money market fund. Its only advantage is the evasion of our sanctions and other laws, including tax laws, and I hope that in imposing sanctions on Russia, you will not promote this by promoting stablecoins.”
Yellen replied: We are very concerned about the use of cryptocurrencies and stablecoins. We don't think what Russia is doing is a big deal, but as our sanctions get tougher, it becomes a concern.
Summarize
Russia's adoption of new mining regulations is an important step to break through the Western economic blockade. It is true that Western sanctions have had a serious impact on the Russian economy, but Russia has chosen to embrace the decentralized world. In this emerging financial gateway, the spirit of equality and freedom behind Bitcoin may bring hope of rebirth to the Russian economy. The crypto world will also be more realistic with the participation of "Polar Bears", showing the charming appeal of the crypto-punk world.
