Bitcoin’s travels to Russia
By Armen Danielyan, AC DELOVOY PROFIL JSC
Bitcoin became the most popular currency among numerous cryptocurrencies and has delocalised very quickly. Today, bitcoin is not only a unit used in monetary transactions of a closed user group, but is perceived by many as an alternative to existing money. Limited cryptocurrency issuance along with a constantly expanding implementation area contributes to its high yield, secured by exchange rate increases. For example, in May, 2010, one pizza was bought for 10,000 bitcoins, while one bitcoin will now buy around 30 pizzas.
Of course, such yield and high exchange rate volatility make cryptocurrency attractive for stock gamblers. The bitcoin market is full of different startup projects, as a result of which the currency has penetrated Russia, albeit still as an ineligible foreigner.
According to the National Agency of Financial Research, today only one in five Russians have heard of bitcoin while only one in twenty really knows what it is.
By Russian law, the only legal currency in the country is Russian rouble and exclusive rights for issuing money belong to the Bank of Russia, so cryptocurrencies are seen as money substitutes. At the same time, bizarre prohibitive measures such as attempts to block web-sources that promote cryptocurrency deals are mostly ineffective because of lack of national cryptocurrency market regulation.
It is worth mentioning that a question of regulation has always been one of the main problems for cryptocurrency development. In spite of the fact that virtual currencies appeared while the internet was still establishing itself, there is yet to be government regulation for the effective mechanisms of this market.
In June 2015, financial authorities of the China, Japan and the USA started forming regulatory rules for virtual currencies’ circulation in order to prevent their usage for illegal activities and terrorist financing. This was the first important step towards the creation of international statutory cryptocurrency market regulation.
According to FATF, the main methods of governmental regulation will be obligatory user identification and transactions limits. In fact, bitcoin circulation must be controlled in a way that prevents money laundering and terrorist financing so that money input and withdrawal from the virtual currency market is controlled. Today, European countries are already considering the possibility of controlling huge bitcoin
deals through banks.
Problems faced by Russian lawmakers in the sphere of cryptocurrencies are similar to other countries introducing virtual money. For example, VAT imposition, potential possibility of virtual currency usage for illegal money laundering and terrorist financing, high flat money risks, inability of tracing and inconvertibility of deals.
The above factors were among the reasons for Ministry of Finance and Federal Financial Monitoring Service repeatedly disputing the ban on bitcoin circulation in Russia.
A critical need to define and adopt cryptocurrency market legislation in Russia as part of Russian financial system is now a hotter topic than ever before. Arguably, FATF rules may prompt Russian authorities to create rules and regulations for market.
In our opinion, the virtual currencies market should be regulated just the same as every other country financial system element. Consequently, regulators should define the capital requirement and liquidity ratios of cryptocompanies and their subsidiaries, as well as introducing strict licensing and authorising procedures and applying reporting and mechanisms of prudential supervision.
Still indisputable is the fact that, regulated or not, the future welcomes bitcoins or some other cryptocurrencies because of obvious advantages: operational efficiency, low cost of transactions, vast geographic footprint and great perspectives for serving commodity flows.
AC DELOVOY PROFIL JSC, Moscow, Russia
published: July 2015