Ben Strack

<div id="highlights-block_6210035252a70" class="highlights">
 <ul>
 <li>Russia’s Ministry of Finance has reportedly begun accepting public comments on rules around digital asset transactions</li>
 <li>The Bank of Russia completed the prototype of its digital ruble platform in December, and 12 banks agreed to test the platform</li>
 </ul>
 
</div>



As Russia mulls rolling out a state-sponsored digital ruble, crypto regulations more broadly remain up in the air amid clashes between the country’s central bank and finance ministry.&nbsp;



A crypto bill appears to still be in the works, and Russia’s Ministry of Finance has <a href="https://regulation.gov.ru/projects#npa=125083" target="_blank" rel="noreferrer noopener">signaled</a> that it is seeking public comments until March 18 on rules around digital asset transactions.&nbsp;



Nick du Cros, head of compliance and regulatory affairs at digital asset manager CoinShares, called the potential of a bill this year “a significant positive development.”



“The central bank doesn&#8217;t hold the pen on the draft legislation, so it will need to lobby very hard for the legislation to reflect its point of view,” du Cros told Blockworks. “As it looks now, the central bank&#8217;s view that there should be an outright ban on crypto and crypto mining looks less likely than Russian-centric regulation which allows crypto to exist with the current banking network.”



Russian Finance Minister Anton Siluanov said Friday that he hopes such a bill passes before the end of the year, <a href="https://www.reuters.com/article/idUSR4N2UR004" target="_blank" rel="noreferrer noopener">according to Reuters</a>.



The Russian government and central bank last week <a href="https://cms.blockworks.co/russias-move-to-regulate-cryptocurrency-puts-other-countries-on-notice/" target="_blank" rel="noreferrer noopener">reached an agreement</a> to draft legislation or amend existing laws recognizing crypto as currency. News outlet <a href="https://www.kommersant.ru/doc/5206307" target="_blank" rel="noreferrer noopener">Kommersant reported</a> that legislation would be drawn up by Feb. 18.



Bloomberg News <a href="https://www.bloomberg.com/news/articles/2022-02-15/nabiullina-digs-heels-in-over-russian-plan-to-legalize-crypto" target="_blank" rel="noreferrer noopener">reported</a> that government officials at the Bank of Russia and the Ministry of Finance did not reach an agreement on the best path forward on Tuesday.&nbsp;



The central bank had previously <a href="https://cms.blockworks.co/proposed-russian-crypto-ban-may-push-miners-west/" target="_blank" rel="noreferrer noopener">proposed to restrict miners</a> and crypto trading over concerns that they could endanger the country’s financial system. President Vladimir Putin has said he supports a plan to tax and regulate the space.



The Bank of Russia, meanwhile, launched a prototype of its digital ruble platform in December, with 12 banks agreeing to test it. Three banks have connected to the platform, the bank said Tuesday, with two completing digital ruble transactions between clients via mobile applications.



Focusing first on the digital ruble before opening up the system to other currencies could give the country a leg-up in the market, Stan Miroshnik, partner at growth equity fund 10T, told Blockworks.



Noting a parallel to China’s <a href="https://cms.blockworks.co/china-debuts-digital-yuan-at-winter-olympics-amid-warnings-from-us-senator/" target="_blank" rel="noreferrer noopener">digital yuan</a>, Miroshnik said the state-sponsored cryptocurrency helped phase out other speculative digital assets.



“To the extent you want to create your own dominant digital asset that the central bank has control of…I think that’s the playbook,” Miroshnik said. “I think that’s the tension we’re seeing playing out.”



The latest draft legislation has been published while the G-20 Finance Ministers and Central Bank Governor Meeting takes place, du Cros said, adding that the timing indicates Russia is more interested in “bespoke” regulations over international crypto standards.



The Bank of Russia and Ministry of Finance did not immediately return a request for comment.



<a href="https://cms.blockworks.co/ukraine-passes-law-legalizing-crypto-as-threat-of-war-looms/">Ukraine passed amendments to its law</a> on digital assets to ratify the eventual creation of a legal market for cryptocurrencies as the threat of an invasion by Russia looms.



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As Russia Tests Digital Ruble, Plans for Broader Crypto Regulation Are Uncertain

<div id="highlights-block_62042cf927e76" class="highlights">
 <ul>
 <li>Russia’s central bank and President Vladimir Putin will have to reconcile their divergent views on digital assets</li>
 <li>The country accounts for 11% of the world’s bitcoin mining, giving lawmakers a large incentive to properly regulate the industry</li>
 </ul>
 
</div>



Russia’s “unsurprising” move to regulate cryptocurrency is expected to spur other countries to follow suit, according to industry participants.



Following a <a href="http://static.government.ru/media/files/Dik7wBqAubc34ed649ql2Kg6HuTANrqZ.pdf" target="_blank" rel="noreferrer noopener">framework</a> drawn up by <a href="https://cms.blockworks.co/russia-moves-to-recognize-crypto-as-a-form-of-currency/" target="_blank" rel="noreferrer noopener">Russia’s government and central bank</a>, policymakers are expected to draft fresh legislation or amend existing laws to oversee crypto as a currency. The measures, according to Russia, will stabilize any broader economic impacts from digital assets.



Anto Paroian, chief operating officer at digital assets investment fund ARK36, said Russia’s response to the rise of crypto reflects a broader shift in nations conceding the technology is here to stay.&nbsp;



“Overall, authorities [are starting to] recognize that crypto is becoming such an entrenched part of how people think about and deal with money in the digital age that the political and economic cost of banning it appears to be far greater than the risk involved in allowing it to coexist with the legacy financial systems,” Paroian told Blockworks via email.



Time is of the essence before international bodies start to influence policy, according to Nick du Cros, head of compliance and regulatory affairs at CoinShares.



“These proposals will likely send the message that countries should enact local regulations quickly and not wait for the [Group of Seven] to set international standards,” du Cros said, referring to the political forum made up of Canada, France, Germany, Italy, Japan, the UK and the US.



Anthony Pompliano, founder of Pomp Investments, wrote in a Wednesday newsletter that Russia turning a “sympathetic” ear to crypto — including putting digital assets on its balance sheet — would “force the hand of the United States.”



“There is a global competition underway that has a decentralized, open system at the heart of it; anyone can plug into the system,” Pompliano wrote. “The game theory is that no one wants to start the cascade, but once your adversary does it, you are forced to adopt the technology or risk being left behind.”



The US, at any rate, will be closely watching developments in Russia, which is set to draw up legislation by Feb. 18, including standards for taxing crypto.&nbsp;



The measures come after Russia’s central bank last month <a href="https://www.cbr.ru/Content/Document/File/132242/Consultation_Paper_20012022_eng.pdf" target="_blank" rel="noreferrer noopener">proposed</a> restricting the circulation and exchange of cryptocurrencies, banning crypto investments by financial institutions and prohibiting crypto mining.



Since, Russian President Vladimir Putin said he supports a plan to tax and regulate mining, referring to “competitive advantages” Russia could gain from crypto mining.



Members of the US Congress, meanwhile, <a href="https://cms.blockworks.co/crypto-industry-will-move-offshore-if-congress-doesnt-act-executives-warn/" target="_blank" rel="noreferrer noopener">have held hearings</a> on crypto in recent months, and industry watchers <a href="https://cms.blockworks.co/crypto-companies-brace-for-year-of-regulation-in-2022/" target="_blank" rel="noreferrer noopener">expect more regulatory clarity</a> this year. A <a href="https://cms.blockworks.co/bipartisan-bill-proposes-tax-exemption-for-small-crypto-transactions/" target="_blank" rel="noreferrer noopener">bipartisan bill introduced last week</a> proposed tax exemptions for crypto transactions of $200 or less.



The US and Russia both have big economic incentives to get a plan in place, considering the latter accounts for about 11% of the world’s bitcoin mining, and the former controls 35%, according to the University of Cambridge’s <a href="https://ccaf.io/cbeci/mining_map" target="_blank" rel="noreferrer noopener">Bitcoin Electricity Consumption Index</a>. Both countries boosted their hashrate following China’s mining ban.



Whit Gibbs, CEO of Compass Mining, — which operates two mining facilities in Siberia, Russia —&nbsp; pegged the country’s approach as “do-no-harm,” adding that Russia has made solid strides in wooing international investors to set up mining operations there.



“I think most nations are already considering taking similar actions to recognize bitcoin and cryptocurrencies as currency,” Gibbs said. “This positive outcome hopefully influences other nations to take the same official stance.”



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Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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