It seems many governments have awoken to the world of digital currencies this week.
Outside the second Moscow Financial Forum on Friday, Anton Siluanov, the Russian Minister of Finance, stated something that has become more and more apparent in recent years to, well, everyone: “The state understands indeed that cryptocurrencies are real.”
Indeed, they are real, and for the last 18 months, they have amassed incredible amounts of capital, which has seen Bitcoin and other popular cryptocurrencies skyrocket in value against fiat currency.
Siluanov’s statements, however, are of paramount importance in a period when digital currencies seem to be going through weekly revolutions. Just last week, as Bitcoin broke the USD5,000 barrier for the first time, if only very briefly, a decision by the Chinese government to ban any new Initial Coin Offerings (ICOs) sent the markets crashing hard overnight. Billions of dollars in value were lost in just a few hours.
Russia has been eyeing the market with suspicion for some time now, openly rejecting the concept altogether over the last few years.
Recently though, their position has shifted to become more open to the concept.
The first draft of the new regulation is expected to be discussed in parliament before the end of the year. It is still uncertain what the law will entail, but Mr. Siluanov’s statements this week indicate it will focus on the definition of the buyer status, buying procedures, and circulation rules within the fiscal structure of Russian law.
One potentially restrictive element would be compulsory registration of buyers. But this also means that the Russian government is taking the forward-looking route of legalizing and integrating digital currencies into its own economy, much in the way that securities and bonds are regulated.
The minister denied any possibility of cryptocurrencies being banned or made illegal in Russia in the near future.
On the whole, however, what will happen is far from clear. For months now, the Russian and Chinese governments have been working on a cryptocurrency alliance based on KICKICO, Russia’s biggest cryptocurrency platform, aiming to launch their own state-led digital currencies.
The alliance was announced for early September but has since been delayed indefinitely, arguably as a result of Chinese authorities cracking down on ICOs.
At the same time, in early September, three people were arrested for the illegal trading of USD9 million in Bitcoin, allegedly used for money laundering, making it the first criminal case related to Bitcoin in Russian history.
Just a year ago, officials in the Russian government demanded punishments of up to seven years in jail for anyone found to be using digital currencies. These hardline views seem to have mostly subsided now, particularly since Vladimir Putin’s and Vitalik Buterin, founder and CEO of Ethereum, met in June, an event partly credited with the change of heart of the Russian leadership.
But opinions differ at the highest levels of the state.
The Russian central bank has stated that it considers the legalization of digital currencies a risk not worth taking. Contradictory statements on the trading of Bitcoin and Ethereum in the Moscow Stock Exchange have also emerged over the last few months.
At the end of the day, however, within this discordant relationship there seem to be clear efforts being made to reach a resolution. Russian authorities want to take advantage of this financial revolution, all the while being assertive in demonstrating that money laundering, tax evasion, and other criminal activities involving the technology will not be tolerated.
All of this makes for exciting news as well as considerable uncertainty. The markets remain volatile, particularly with news emerging last Friday that the Chinese authorities could take their ICO ban further, with the total prohibition of Chinese exchanges to trade in any cryptocurrency.
For investors, in the meantime, this changes little, for the markets remain full of both risk and opportunity.