At the end of July this year, Russia legalised cryptocurrencies. For this purpose, the State Duma passed two laws: the first one on the legalisation of cryptocurrency mining, and the second one on foreign trade settlements and exchange trading in cryptocurrencies. The latter law came into force yesterday, on 1 September. It allows the Bank of Russia to launch an “experiment” to create a platform for the use of cryptocurrencies in international payments.
Komersant ukrainskyi
decided to find out why Russia needs to legalise the cryptocurrency market and whether it will help it circumvent the existing sanctions.
Is it possible to circumvent the EU and US sanctions by legalising the cryptocurrency market?
As economic expert Ilya Neskhodovsky told in an exclusive commentary, Russia really needs to legalise cryptocurrency to find a way around existing sanctions. This will allow Russian importers and exporters to use crypto in cross-border payments in foreign trade.
“This law was clearly passed to circumvent sanctions. The only point is that the European Union has already introduced a sanctions mechanism in its previous sanctions package for those cryptocurrencies that can be used to circumvent sanctions. It also applies to crypto exchanges that will convert the relevant cryptocurrencies into other currencies, for example, the dollar or the euro.
In other words, this mechanism can only function in a closed mode, exclusively between two countries that agree to accept such payments,” the expert said.
Legalisation of the cryptocurrency market for cooperation with China?
According to the expert, the Russian side is definitely considering the scenario of cooperation in the cryptocurrency market with China. Moreover, Sun Tianshu, the founder of the Russian-Chinese B2B platform KIFA and Chairman of the Board of Directors of KIFA, recently said that one of the exporters had already offered them to make payments in cryptocurrency.
However, as Ilya Neskhodovsky explains, even if the scenario of paying for cooperation between Russia and China with cryptocurrency works, a serious problem cannot be avoided.
“If this certain cryptocurrency, which they will use to pay each other, goes beyond the scope of Russian-Chinese settlements, sanctions will be triggered. And thus, this cryptocurrency will be limited to withdrawal into a more stable cryptocurrency and will not be backed by anything. Will other countries agree to accept this form of payment?” the expert wonders.
How cryptocurrencies work
Any cryptocurrency must be backed by something, it must be trusted, explains Ilya Neskhodovsky. Moreover, today cryptocurrencies are not widely used in payments because their fluctuations and risks are quite significant. If this cryptocurrency is also constantly threatened by the so-called Sword of Damocles in the form of possible sanctions, no one will want to buy it.
“All cryptocurrencies have to be backed by something. At a certain point, they are only backed by the fact that market participants are ready to accept this cryptocurrency, knowing that they will then go to a crypto exchange and exchange it, for example, for dollars. When there is such trust, this cryptocurrency can function. How can there be any trust in a cryptocurrency that is subject to sanctions?” the expert emphasises and explains that any cryptocurrency drops in value to almost zero as soon as the Ministry of Finance or someone else applies any sanctions or even threatens to do so.
At the same time, it is impossible to say for sure that Russia’s plan will not work.
“It is not known how widespread it will be, we need to monitor the situation further, the law has only recently been adopted, but I think that cryptocurrency payments will not exceed a few percent in foreign payments,” the expert concluded.
What happened on the cryptocurrency market in Russia in 2022-2023
At the end of 2022, the aggressor country was among the three largest countries in terms of computing power involved in cryptocurrency mining. According to media reports, in 2022, the total capacity of the largest Russian mining companies exceeded 500 MW. In 2022, miners in Russia mined cryptocurrencies worth about 50-60 billion rubles, said Pavel Novikov, director of Skolkovo Fintech Hub, in May 2023.
In 2023, Russia was ranked second in the world in terms of this indicator. According to the Russian mining company BitRiver, from January to December 2023, the amount of capacity used in mining increased to 1700 MW. It is not known how the situation will change this year with the review of the legalisation of mining.
Author – Aliona Kaplina