Key cryptocurrencies are bleeding from losses of more than 20 per cent in a week, as the market adjusts to news that Russia is pursuing a ban on the trade and mining of cryptocurrencies.
The value of one Bitcoin dropped from $US43,293.80 to just $US33,629.50 – a 22 per cent decline – in less than five days after the Central Bank of Russia proposed a broad ban on cryptocurrencies, which it said resembles a pyramid scheme built on energy-hungry crypto mining practices.
The volatility of cryptocurrencies poses risks that are “much higher for emerging markets, including Russia,” the bank warned, recommending that financial institutions be blocked from using cryptocurrencies for any transactions and advised that the exchange of crypto for fiat currencies be banned.
Individuals would not be banned from owning cryptocurrency, according to reports that noted Russians currently trade around $7b ($US5 billion) on the digital assets.
However, crypto exchanges would be prevented from operating within the country, and the Central Bank of Russia would engage with regulators in other countries to monitor the crypto transactions of Russian citizens.
Monitoring of cryptocurrency has become an increasingly common goal for governments as they seek to take away the anonymity that has allowed cryptocurrency to become the de facto currency of the cybercriminal underground.
The Australian Taxation Office (ATO), for one, has been using data matching to trace crypto transactions since 2019.
Whatever its promise in hindering criminals, the proposed ban drew condemnation from Russian tech giants like Telegram founder Pavel Durov, who noted that “no developed country bans cryptocurrencies” and that “such a ban will inevitably slow down the development of blockchain technologies in general.”
“These technologies raise the efficiency and safety of many human activities,” he continued, noting that Russia is “one of the leaders in terms of the number of highly qualified specialists in the blockchain industry” and warning that a ban “will lead to an outflow of IT specialists from the country and destroy a number of sectors of the high-tech economy.”
“Such a ban is unlikely to stop unscrupulous players, but it will put an end to legal Russian projects in this area.”
Cracking down on instability
Crypto investors initially saw the ban as a non-event, insisting the market would absorb the news without issue – yet the rapid decline in Bitcoin, an industry bellwether, suggests that the proposed ban has indeed rattled many cryptocurrency investors.
Russia joins a small group of countries that have moved to clamp down on, or outright ban, cryptocurrencies – including Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and China – which, in September, dropped the hammer on the industry by declaring crypto trading as “illegal financial activities”.
Some 42 other countries have clamped down on banks’ trading in cryptocurrencies, with some doing so for practical reasons: Iran’s recent shutdown of crypto mining until 6 March, for example, was linked to the need to reduce the risk of blackouts during that country’s cold winter.
Yet for all the grandstanding against cryptocurrency mining, there are indications that miners have become good at adapting to change: after China’s cryptocurrency ban, for example, neighbouring Thailand saw a boom in crypto mining.
Other countries – Australia included – are increasing their official scrutiny of cryptocurrency transactions and their role in the overall financial system.
In December, treasurer Josh Frydenberg announced that the government would be undertaking legislative reform around cryptocurrencies during 2022, with consultation due to be finalised by mid-year.
The government’s announcement came just weeks after the Commonwealth Bank of Australia announced it would partner with cryptocurrency exchange Gemini to allow CBA customers to buy and sell cryptocurrency assets through its online banking app.
“The emergence and growing demand for digital currencies creates both challenges and opportunities for the financial services sector,” said CBA CEO Matt Comyn, highlighting the need for “capability, security and confidence in a crypto trading platform.”