Russia’s central bank last week proposed banning the mining and use of cryptocurrencies in Russian territory. If enacted, it would make Russia at least the 10th country, along with China, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia and Bangladesh, to do so.
The central bank’s reasoning will sound familiar to those who are aware of the reasons those other nine countries banned the mining and use of cryptocurrencies: The bank calls it a Ponzi scheme that is too volatile for legitimate investment, is a tool for criminal activity, poses a risk to Russian financial sovereignty and could disrupt Russia’s energy supply and harm the environment.
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There was a nosedive in Bitcoin and Ethereum values the next day, and it looks at first glance like those two news items simply have to be related. Naeem Aslam, chief market analyst at AvaTrade, said in a statement that there are a number of factors that caused last week’s Bitcoin tumble.
Aslam cited China’s and Russia’s lack of support, the likelihood that central banks (particularly the U.S. Federal Reserve) will take action to control inflation, a generally slow adoption mechanism and a lack of positive headlines as reasons for a continued price decline.
Gartner VP and distinguished analyst Avivah Litan, who covers artificial intelligence and blockchain technology, said the massive selloff and price drop on Jan. 21 was probably not related to Russia’s announcement. “There was a major sell-off because of the Fed and traders covering their positions—they needed the cash and sold their speculative asset positions,” Litan said.
The real reason for crypto bans
Litan said it’s worth noting that cryptocurrency bans have been coming largely from authoritarian countries with a vested interest in controlling their citizens’ finances. As such, we should be roundly skeptical when they give reasons for instituting such bans.
“The Central Bank of Russia is spinning their cryptocurrency storyline to suit their own totalitarian methods rather than be upfront and say it like it is,” Litan said. Russia’s claim of crypto as a tool for criminal activities is rapidly becoming untrue, Litan said, citing a recent Chainalysis report that found only 0.15% of all blockchain transactions in 2021 were criminal activity, and “this percentage had dropped precipitously for the past two years,” Litan said.
Litan finds its environmental concerns disingenuous as well, and said that what Russia’s proposal ultimately comes down to is control. “Cryptocurrency usage and trading threatens Russia’s already weak Ruble, which is trading at around a nine-month low. More importantly, it threatens their ability to control their population’s finances,” Litan said.
Russia’s proposal hasn’t even been well-received inside its own borders, with several high-profile tech leaders and even a finance minister saying an outright ban is a bad idea.
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Ivan Chebeskov, director of the Russian Finance Ministry’s policy department, said that a ban would result in Russia losing out on an opportunity for high-tech innovation. “The world has become very virtualized, and I don’t think we can allow ourselves to just take a high-tech industry and ban it … . We don’t want these technologies to leave the country; they should absolutely be developed inside [Russia],” Chebeskov said.
Reuters reports that Russia is the third-largest Bitcoin mining country behind the United States and Kazakhstan. If, as many predict, blockchain technology and cryptocurrencies are here to stay no matter how they transform to meet environmental and other regulations, Russia would be shooting itself in the foot by banning it outright.
Litan said Russia has missed out on innovation opportunities before, and this move could eliminate its ability to keep up with the next evolution of the internet. “Myopic governments are unwilling to figure out how to work with new Web 3.0 technologies and infrastructure. Rather than intelligently regulate it, they find it easier to outright ban it. In the end, these countries will lose out.”