When it comes to cryptocurrency regulations, Russia is one of the most draconian countries in the world. They are currently proposing regulations that can jail people for up to 7 years for issuing money surrogates such as Bitcoin. This could also include fines up to 2.5 million rubles ($35,000).
Even accepting bitcoin as a form of payment is being made illegal. The Russian government started scheming for harsh regulations as early as 2014. The first signs of a government crackdown occurred when mining equipment was being confiscated at the border.
Bag Holding the Falling Ruble
Perhaps the main reason why Russia is so concerned about cryptocurrencies is because their national currency has been taking a nose dive. Looking at the 2 year chart we can see that the Ruble has lost 48% of its value when compared to the USD.
Having a national currency lose half of its value may cause citizens to look for ways to preserve their wealth. The government has been tightening all forms of capital controls, leaving many of its citizens as bag holders. This includes a ban on USD banks accounts and going after offshore tax havens.
This seems to be a classic case of “do as I say and not as I do.” It recently came to light in the Panama papers that Russian President Vladimir Putin’s close friends have billions of dollars in offshore tax havens.
Local Bitcoin Volume Showing Exponential Growth
Despite the ban on crypto, LocalBitcoin trading volume is showing exponential growth in Russia.
LocalBitcoins is a peer-to-peer service for buying and selling bitcoins. The volume on this site likely represents organic growth because most coins are purchased locally at a premium.
Volume stats reported on regular exchanges usually only represent the same coins being shuffled back and forth amongst traders. These stats can be manipulated by wash trading bots on zero fees exchanges.
The exponential growth in local Russian bitcoin volume shows the resilience of decentralized technology in spite of regulations.
Bitcoin as a Financial Hedge
Bitcoin’s best feature is its decentralization. History is filled with examples of economic collapse, bank runs and hyperinflation. Now we have new situations such as bail-ins, where the government can prop up the failing banks by siphoning money out of your account.
The decentralized nature of cryptocurrencies can act as a hedge against a failing economy. Unlike the legacy system, crypto doesn’t require trust in a third party. When financial systems fail it seems that the average person is left getting the wool sheared off their backs.