FOCUS: Regulator, govt seen likely to meet halfway over cryptocurrencies

By Yekaterina Yezhova

MOSCOW, Feb 7 (PRIME) -- The Russian central bank’s idea to ban cryptocurrencies, opposed by the Finance Ministry, has caused a stir on the market where the people own 17 trillion rubles worth of such assets, while analysts think the golden mean will be found.

“The standoff between the Finance Ministry and the central bank will end in a compromise. The ministry needs new taxes. Electricity supplies for mining will be thought through; only qualified investors will be most likely authorized to buy cryptocurrencies; it is quite probable that one would have to prove legal sources of money for large purchases of cryptocurrencies,” Andrei Vernikov, head of the department of investment analysis and training at investment company Univer Capital, told PRIME.

“Perhaps, a national cryptocurrency exchange will be established at the second stage. An entire ban of the cryptocurrency sounds unlikely.”

In a consultation paper, the central bank said that there are potential systemic threats related to the cryptocurrencies as the people’s interest to them is growing, investment is considerable, and the risks associated with cryptocurrency transactions are very high. “As the Russian ruble is not a reserve currency, Russia cannot apply a soft approach in this area and ignore rising risks,” the regulator said.

The Finance Ministry supported regulation of cryptocurrencies, not their ban, and is waiting for the government’s opinion. President Vladimir Putin called on the government and the central bank to arrive to a common view.

Andrei Turchak, secretary of the General Council of political party United Russia said that about 6 million Russians are registered on the crypto bourses and invested several trillions rubles in the currencies. Bloomberg reported that Russians own over 16.5 trillion rubles worth of cryptocurrencies, while the global market is currently estimated at about U.S. $1.75 trillion.

According to a recent poll of the Russian Public Opinion Research Center, a third of Russians spoke in favor of the ban, a third were against, and a third had no opinion.

Prohibition may do some good as it would diminish the gray economy. “The government wants transparent financial transactions and is introducing a digital ruble to make cash flows clearer for the tax service. In this paradigm, the cryptocurrencies are money surrogates, a dead branch of evolution,” Vernikov said.

“The good part of it is better ecological situation. Bitcoin has a carbon footprint, while there is only a handful of eco-friendly cryptocurrencies that consume less electricity, and they are not very popular. Bitcoin mining accounts for 0.08% of the world’s CO2 output so far, which is little, but the figures go up every year.”

Miners like Russia because of low electricity prices and because its cold climate helps cut costs of cooling of farms, but the existing grids are not supposed to handle excessive load.

“We may find ourselves in a situation similar to the one in Kazakhstan, where miners from China caused electricity outages. The authorities have regretted having welcomed the Chinese miners when the country banned cryptocurrencies. Irkutsk has already had problems caused by miners,” Vernikov said, referring to the East Siberian city.

But in case of the ban, the government will not get taxes from cryptocurrency transactions, he added. Experts earlier calculated that regulation of the cryptocurrency market may bring about 300 billion rubles to the budget in five years, while tax collection from bitcoin mining may reach $100–200 million per year.

“One of the arguments in favor of better cryptocurrency regulation is that the bulk of Russian miners pay retail power tariffs, while using much more electricity than the usual consumers. Russia’s power tariffs are about three times lower than the global average, which makes mining highly profitable. Because of the difference in tariffs between the regions, some of them are more popular among the miners than others,” investment company VTB Capital said in a research note.

Aaron Khomsky, head of the investment department at Independent Capital Blockchain Fund (ICB Fund), said that mining and investment in cryptocurrencies should be regulated like any business so that market feels safe and the government gets taxes.

“Foremost, a reasonable bill should be approved with all the terms from the new sphere defined. The necessity has become more urgent after miners from China came to the country. The crypto business is not only coin mining, and a great deal of investors and intermediaries are also waiting for more transparency,” Khomsky said in a note.

The expert added that cryptocurrencies pose no risk for the financial system, but the people can easily fall victims to fraudsters because of the lack of regulation.

(76.0509 rubles – U.S. $1)

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