Is there a crypto thaw in Russia and why?

For years, Russia has been sending conflicting signals regarding its dealings with cryptocurrencies. Recently the Kremlin has apparently begun to embrace crypto. Is this really the case?

First crypto regulations in Russia

Until the 2020s, cryptocurrency in Russia existed in a de facto gray zone. In July 2020, President Vladimir Putin signed a digital financial asset (DFA) regulation that prohibits residents from using crypto as a means of payment while allowing crypto transactions.

DFAs are available to banks registered with the central bank of Russia, known as the Bank of Russia. It is only possible to challenge crypto transactions in court if crypto ownership continues and the owner declares the transactions.

In February 2022, the Russian central bank published an advisory called “Cryptocurrencies: Trends, Risks and Regulations.” There is talk of Russia’s leading role in mining capacity and that Russians are actively trading crypto. Additionally, the article notes that even in the long term, the potential for cryptocurrency to be used in settlements is “limited.”

According to the bank, cryptocurrencies threaten the well-being of Russians, so ensuring full transparency of crypto transactions was a necessity. The newspaper called for a ban on the creation of cryptocurrencies and crypto exchanges, a ban on financial institutions investing in crypto or related assets, and a complete ban on mining.

Additionally, the central bank called on the government to monitor the activities of Russian citizens on foreign cryptocurrency platforms. The consultation document mentioned the continued development of the digital ruble as a possible legal alternative to cryptocurrencies.

The Reason Behind the Crypto Meltdown

It would not be wrong to say that the 2022 consultation document does not shape today’s Russia’s relations with cryptocurrency. Despite the central bank’s recommendations, the Kremlin has taken a different path from the restrictive approach typical of Russian strategic partners such as China, Iran, Turkey, Belarus or India.

The apparent reason for this “Crypto Unravel” is simple: Russia has become more positive towards crypto as Western sanctions shrink the space for overseas trade.

In an interview with the Russia 24 TV channel on December 25, 2024, Finance Minister Anton Siluanov admitted that Russian companies are increasingly using Bitcoin for international trade and Putin will not hinder this process. The Russian president actually signed legislation legalizing the limited use of cryptocurrency in international trade in the summer of 2024. The law allowing Russian companies and individuals to mine, buy and sell crypto was signed in August and started on November 1. 2024. However, using cryptocurrencies as a means of payment within the country is still prohibited. Crypto advertising is also not allowed.

However, the need to bypass sanctions is not the only reason for a friendlier approach to crypto.

Bitcoin mining, weakening of the dollar

Crypto is famous for its independence from governments, but that is not the only reason why the Russian government has resorted to using this asset that its strategic rivals have been unable to thwart.

Putin has been a consistent advocate of de-dollarization and cryptocurrencies for years; He didn’t like it at first, but it turned out to be what he needed. The US dollar is the backbone of global trade (more than half of foreign trade is carried out in US dollars) and is the world’s reserve currency. But now the American dollar may face problems as the US government tries to strengthen Bitcoin.

Some experts warn that Bitcoin in the US can only become stronger at the expense of the strength of the USD. So Bitcoinization of America is de-dollarization. Moreover, foreign trade in Bitcoin instead of USD (which is what Russia is doing now) plays against the dollar. Since the USD is not Russia’s national currency, it does not lose more than America when the Kremlin brings more bitcoins into the game because bitcoins hurt the dollar more than the ruble. America’s efforts to create a strategic Bitcoin reserve can only worsen the situation for the American dollar. Ukraine has already called for Russia to block the use of bitcoin in international trade.

Another possible reason why the government has chosen to exploit the potential of cryptocurrencies is the support of sanctioned tycoons. One of them is aluminum and energy oligarch Oleg Deripaska. The facility of the aluminum factory Rusal was converted into a mining farm in 2019. The name of the enterprise is Russian Mining Company. RMC was co-founded by Russian official Dmitry Marinichev, who estimates that mining capacity is 20% of global Bitcoin mining production.

RMC has only been mentioned once in the media, and it is not the only crypto mining company with links to Deripaska. BitRiver has been called the largest crypto mining organization, and there is no evidence that BitRiver is the same company as RMC. However, RMC co-founder Marinichev was appointed deputy director of communications at BitRiver.

BitRiver was sanctioned by the US Treasury in 2022. BitRiver CEO Igor Runets noted that BitRiver has no ties to the Kremlin and that the sanctions are solely motivated by competition. Bloomberg notes that Deripaska, who is close to the Russian government, played a notable role in founding BitRiver and providing the facility for mining equipment in the Siberian city of Bratsk, whose cold climate is well suited to mining operations. BitRiver was powered by the energy company En+, one of Deripaska’s major assets.

final thoughts

Has Crypto Unraveling Come to Russia? It seems so. But the thaw is far from summer or spring. Rather, a brief period of defrosting is a time of hope. Like Khrushchev’s Thaw, this is a period of weakening of repression and new opportunities for elites and some individuals. Time will tell what happens next.