On January 20th, the Central Bank of Russia (CBR) published a report summarizing its position on digital assets and a Ban on any crypto trading and mining operations in the country. Although the CBR’s strict position on the matter has never been a secret, such a bold statement sparked waves of fear, uncertainty and doubt — aka FUD — across the board given Russians’ high stake in the global digital asset market.
Still, there are reasons to doubt the ultimate effectiveness of the CBR’s tough tender, both in terms of its enforceability and acceptance by other centers of power, including legislators and siloviki (security crats). For the central bank, the picture gets even more complicated, as a senior official at another key center of economic policy, the Treasury Department, spoke in favor of it Regulate crypto instead of banning it earlier this week. What are the chances of the hardline approach catching on?
What does the CBR want to ban?
Using a standard set of cryptophobic arguments, like comparing digital assets to a Ponzi scheme, the central bank’s “Cryptocurrencies: Trends, Risks, Actions” report calls for a full domestic ban on over-the-counter trading desks and crypto exchanges alongside mining. The focus is particularly on the use of legacy financial infrastructure: the CBR’s document is aimed at private banks and institutional investors and advises them against any participation in digital assets.
In its current form, the proposed ban would not ban ownership of digital assets by individual investors, nor would it ban exchanges across international rails. Nevertheless, the regulator wants to introduce some tax transparency and ensure that private investors do not escape their tax burden. Non-fungible tokens (NFTs) would also likely fall outside the scope of the ban.
Possible impact on crypto operations
Many domestic stakeholders do not believe in the effectiveness of the proposed restrictions. Speaking to local media, Maksim Malysh, CEO of mining platform Kryptex said, explained that it is unlikely that the mining ban would lead to a market collapse as the largest Russian-owned mining pools operate outside Russia’s borders and are registered as foreign companies. Exchanges, he claimed, would not have a hard time creating new mirror sites if domains were blocked. In Malysh’s opinion, “Any ban would only lead to increasing popularity of VPN services.”
Andrey Mihaylishin, co-founder of crypto payment system Joys, doubt that the measures proposed by the CBR would also stop larger investors – they could simply open accounts in Belarusian or Kazakh banks where crypto investments are legal.
As the report invites input from the public, there is hope that industry participants will be able to come up with compelling arguments against the ban. The largest Russian mining pool, EMCD, plans to submit their comments on the report to the central bank and to share with the regulator their thoughts on taxation, risk management and further institutionalization of mining. EMCD’s ideas include special energy tariffs for mining companies and tax breaks for those operating in economically weak regions of Russia.
In any case, the report is not a legally binding document, unlike the federal law “On Digital Financial Assets and Digital Currencies” passed in 2020. The language of the law is vague and doesn’t mention mining at all, for example, although it still allows “the issuance of digital financial assets.”
The unlikely allies
It came as no surprise that vocally freedom-loving Telegram founder Pavel Durov struck the proposed ban, which warns of its destructive potential for “the development of blockchain technologies in general” and “a number of sectors of a high-tech economy.” Much more unexpected, however, is the backlash from other government agencies and officials to the CBR report, which contradicts the simplistic picture of a monolithic Russian state machine.
Andrey Lugovoy, deputy chairman of the Committee on National Security and Anti-Corruption of the State Duma – the lower chamber of Russia’s parliament – publicly stated that it was wiser to continue working on legalizing the industry rather than banning it. Lugovoy, who was also one of the initiators of a working group to legalize crypto mining, said:
“When you make statements like this – ‘We strictly prohibit’ – you should justify your position in concrete, clear and understandable numbers and explain what you will do with the people who already own cryptocurrency. […] Nobody knows why the CBR takes such a radical view. There is a single explanation – high volatility and “It’s a Ponzi Scheme”. So what? We can give many examples of something risky that still plays a role in our daily lives.”
In fact, the Duma has had a strained relationship with the central bank for some time. Lawmakers have been working on a crypto regulatory framework for several years, but these attempts have foundered on the unyielding stance of banking regulators. A bill that would have clarified taxation procedures surrounding digital assets has reportedly been blocked due to objections from the CBR. Even the Federal Tax Service, which is very interested in citizens’ crypto earnings, was unable to change the situation.
Related: Ban less likely? Putin says crypto mining has advantages in Russia
In its report on the proposed ban, Bloomberg – citing anonymous sources – pointed on the lobbying influence of the Federal Security Service (FSB) as one of the factors driving the initiative of the CBR. Allegedly, the FSB is concerned that crypto is being used as a tool to fund the country’s opposition. Leonid Volkov, chief of staff to opposition leader Alexei Navalny, confirmed that this use case is accurate and also expressed his disbelief in the ultimate success of the policy.
Bloomberg’s narrative did not go unchallenged, however. Calling it “a well-crafted fake that someone has an interest behind,” Lugovoy claimed he had never heard FSB officials offer any position on crypto during parliamentary working group meetings. According to Russian business newspaper The Bell, the CBR was the only entity in the interagency working group on crypto support financially a “Chinese scenario” for regulation of digital assets against which the FSB raises its voice. At this point, the working group has unanimously rejected only two regulatory frameworks: full legalization of crypto and current non-intrusion.
The Treasury Department gets involved
The story took a new turn on Jan. 25 when Ivan Chebeskov, head of the Department of Fiscal Policy at the Treasury, stated that the Treasury’s position was to regulate, not ban, digital assets. In addition, he mentioned that the agency has already prepared its own regulatory framework and is currently awaiting government feedback. According to Chebeskov’s statement:
“The world has become highly virtualized, technology is advancing rapidly, and I don’t think we can just take one of the high-tech industries and ban it in our country and have it developed elsewhere.”
This wasn’t the first time the Treasury Department had told the CBR that it had a different view on the matter. At a Duma session in December 2021, Deputy Finance Minister Aleksey Moiseev stated suggested Limiting cryptocurrency purchases only to unqualified investors. He added that it is “too late” to ban cryptocurrencies as more than 10 million Russian citizens collectively own around 5 trillion rubles ($63 billion) in crypto.
This disagreement could further weaken the central bank’s position and potentially bring some relief to the industry. With a wide range of opponents in both the legislature and the executive branch of government, and no direct backing from the security agencies, the CBR’s report looks like overkill.
Historically, under President Vladimir Putin’s rule, the CBR has enjoyed broad autonomy in economic decision-making, but has been constrained by its specific mission: sustaining the economy by curbing inflation, introducing austerity measures when needed, and ensuring the stability of the national currency .
The power to enact bans has always rested with other bodies, be it parliament or the government. So if the entire reasoning for the ban rests solely on the CBR’s distrust of a volatile asset class and their unwillingness to create complex regulation, chances are that last week’s report is little more than a government agency’s position paper remains a hot topic .
