Upping its hostile regulatory ante against cryptocurrency trading and mining in Russia, the country’s central bank today called for a blanket ban on cryptocurrencies, citing them as “volatile and widely used in illegal activities”, and a threat to the country’s financial stability, citizens’ wellbeing and the sovereignty of its monetary policy.
According to the Bank of Russia, speculative demand is driving the rapid expansion of decentralized cryptocurrencies, which could lead to a market bubble. “Cryptocurrencies also show characteristics of a financial pyramid, as the rise in their prices is mostly driven by new market players’ desire,” the Bank was quoted by The Moscow Times as saying.
The Bank of Russia outlined in its consultation paper that it wants to prohibit financial institutions from investing in or conducting any transactions with cryptocurrencies. The Central Bank also wants to outlaw bitcoin exchanges and services that support cryptocurrency trading. Russian residents’ transactions using decentralized cryptocurrencies are estimated to be worth $5 billion (Rs 37,196.77 crore) per year, the Bank claimed. It also advocated prohibiting crypto mining, noting the threat it poses to Russia’s financial stability as well as the implementation of the country’s environmental goals, the Russian news outlet reported.
The report added that cryptos resemble financial “pyramid schemes” because their value increases with the emergence of new players on the market.
It estimated the annual transaction volume of Russian citizens at $5 billion (roughly Rs. 37,270 crores).
Bloomberg earlier cited sources as saying that Russia’s domestic security agency, the FSB, had lobbied central bank head Elvira Nabiulina for a ban.
The FSB cited concerns over Russians frequently using the hard-to-trace transactions to support “undesirable organizations”, such as opposition groups.
The paper also highlights the problem raised by cryptocurrency mining. Since mining of cryptocurrencies requires large computers with high computational power, their demand for energy takes a toll on the energy grid of a region. Many countries are addressing this issue now, and Russia’s central bank seems to have taken a stance on it.
Russia ranks as the third-largest region for bitcoin mining in the world. With the corresponding energy demands causing an excess load on its energy sources, the Bank of Russia has stated that “the prohibition of cryptocurrency mining in Russia could be the best solution” to mitigate this issue.
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