Russia's Draft Crypto Rules -- A Major Letdown

I’ve been pretty vocal about how Russia has seemingly embraced the crytpocurrency craze. In announcement after announcement this year it looked like the state apparatus in Russia under President Vladimir Putin’s direction would be at the forefront of seeing the opportunities for Russia to utilize cryptocurrencies to avoid the worst of the hostility coming from the U.S.

With the draft legislation put forth by the the Russian Ministry of Finance this week those hopes look to be dashed.

The ‘Crypto-Ruble’ we discussed at great length over the summer? Nixed.

Integrating cryptocurrencies into day-to-day Russian life? Nope.

Regulation of miners and mining as taxable profits? Yes.

In short, this draft legislation is about as hostile to cryptocurrencies as it could possibly have been. And it betrays who still has out-sized control over the Russian economy and state-apparatus.

And it has been coming for a couple of years. It finally took Putin demanding they put a draft together by the end of this year to get something from them. Deputy Finance Minister Alexei Mosieev has been very hostile to Bitcoin and the legislation is a reflection of this.

And, for the life of me, I have to wonder what he’s thinking when it is obvious that Putin wanted something far more progressive than this backwards looking bill.

For all of the talk about how Putin runs Russia with an iron fist for his own enrichment, it was he who pushed for regulations and legislation to be drafted. And for the MoF to come back with this along with the Bank of Russia’s blessing is telling.

I’ve always heard that it is the Russian banking system and the politicians connected to it that are the real Fifth Column within Russia that Putin has yet to get under full control. The Bank of Russia’s adherence to IMF-style austerity in the wake of the ruble crisis in 2014 has made this clear.

Bank of Russia President Elvira Nabullina had to be privately dressed down (I suspect) by Putin himself in March before she would finally relent and begin lowering interest rates from 10% which were obviously strangling the Russian economy.

Today rates stand at 7.75% and they are still way too high, if the Russian yield curve is any indication.

It’s almost like the Bank of Russia is trying to keep the Russian economy puttering along on the edge of recession in the lead up to March’s elections.

These draft rules on cryptocurrencies were obviously put together by backwards-thinking oligarchs who owe their allegiance more to Wall St. and The Square Mile than they do Russia.

To give you an idea of how stupid these rules are. Russians would be allowed to own cryptocurrencies but they wouldn’t be allowed to use them for anything. They obviously want to protect the status of the ruble as the only settlement currency but at the same time the biggest issue in Russia is the existence of a parallel dollar-based banking system.

This has been the primary complaint of Stolypin Group Leader Sergei Glazyev who has been very vocal in his condemnation of how the Bank of Russia and the MoF have not closed loopholes to the flow of dollars through the Russian economy.

Glazyev spoke up recently on this issue saying very similar things to me; that cryptocurrencies would be a natural way for Russia to fight further U.S. sanctions and attract capital into Russia that wants to flow in but legislative and regulatory hurdles prevent it.

For Putin he knows that Russia’s weakness is not its labor pool, its technological potential, or its physical capital. Russia’s fundamental weakness, which was exploited to great effect in 2014 by the U.S. and the EU, is its financial system.

I’ve said this many times, what is holding the Russian economy back is a lack of professionalism in the way capital flows through the country. Its banking system is, effectively, third world, and still corrupted by Western influences.

Ethereum and other ‘smart contract’ cryptocurrencies have the ability to help Russia leap frog from its current level of financial back office efficiency to surpass that of the West because so much of that back-office work involves the processing, clearing and archiving transactions which is inherent in the information contained on the blockchain.

The sanctions bill President Trump was forced to sign by John McCain and the rest of the neocon morons in the Senate has a provision that the Executive Branch must draw up a new list of Russian officials to sanction by February. Also, it is expected that Trump will ban buying Russian government bonds by American investors.

All of this is timed to ensure maximal political damage is done to Putin on the eve of his re-election. And now you also know why we’re sending weapons into Ukraine to intensify the conflict with the Donbass.

Moreover, as the Coindesk article linked above brings up, the basic hypocrisy of the bill is plain to see:

Following Moiseev’s announcement, experts told the publication that “the authorities will have to solve the most complicated task: to explain why you can pay for purchases with ‘bonuses’ on bank cards or ‘miles’, but cannot with bitcoin.” Economist Maxim Blunt commented:

Ways to circumvent these prohibitions are massive, can you pay with accumulated points in eateries or coffee shops? Then all of them should be on the bunk next to Gref.

The reference was to Sberbank’s president Herman Gref who publicly admitted that he bought a T-shirt using Bitcoin a few years ago. His bank also recently admitted to having bought almost all of the graphics cards on the Russian market but did not say whether they were using them for cryptocurrency mining.

The banking oligarchy is scared to death of cyrptocurrencies becoming true alternate payment. Guys like Mosieev can do a lot of damage before they leave the scene. With Putin running for re-election between now and March, it is things like this that he simply won’t have time for.

I expect the final version of this bill will look completely different than what the Mof, the Bank of Russia and Wall St. wants.