Russian Minister: Cryptocurrencies Need Not Be Clearly Defined Under Current Regulations

Omar Faridi

Alexander Konovalov, a prominent lawyer and Russia’s Minister of Justice, has confirmed that the Russian Federation’s constitution and laws regulating the nation’s traditional financial system “categorically prohibit the use of the cryptocurrency as a means of payment.”

Konovalov’s remarks came during the government hour which is a meeting regularly held in the country’s Federation Council. According to local news outlet Tass, a proper regulatory framework for digital assets may not be introduced anytime soon.

Citing Article 75 of Russia’s constitution, which states that Russia’s reserve bank is the only financial institution in the country that can issue legal tender (in the form of Russian rouble), Konovalov clarified that introducing or issuing other types of currencies is prohibited.

Although cryptocurrencies may not be (legally) used as a medium-of-exchange (MoE), Konovalov said digital assets may be classified as “other property” under Russia’s existing regulations. However, the experienced politician and lawmaker noted that it’s currently not necessary to clearly define the concept of cryptocurrencies.

Russia's Stance On Financial Digital Assets Remains Unclear

Similar to other jurisdictions such as India, the Russian government’s stance on digital assets remains unclear. Last month, the nation’s Ministry of Economic Development had drafted a new law to permit certain commercial entities (from the IT and blockchain industry) to conduct financial transactions with cryptoassets.

In mid-January 2019, Anatoly Aksakov, the head of Russia’s State Duma Committee Financial Market, had stated during a press conference that the country was planning to adopt several bills related to regulating the country’s digital economy. According to Tass, Russian authorities were also considering introducing legislation concerning the use of cryptocurrencies in financial transactions.

Aksakov explained (last month) that Russian lawmakers had agreed the bill on digital financial assets should also include regulations for using cryptoassets in crowdfunding, or initial coin offerings (ICOs). Notably, legislation pertaining to the business activities of e-commerce platforms had also been scheduled to be introduced by February 15th, 2019.

Should Not Dismiss Cryptocurrencies Because Prices Have Dropped

Russian Federation prime minister, Dmitry Medvedev had said in January that cryptocurrencies were still “interesting” - even though their prices had dropped significantly. Medvedev had argued that a decline in the value of digital assets was “not a reason” to stop following their ongoing development.

The Russian prime minister’s comments came during a speech he delivered at the Gaidar Forum, a major economic discussion event held in Moscow (Russia’s capital). He remarked: 

I’ll remind you that at our last meeting here, at the Gaidar Forum, we also talked about how good and interesting this all is, and so, since then, the cost of some cryptocurrencies, as we know, has fallen five times. But this, certainly not a reason to bury them … there are both light sides and dark sides, as in any social phenomenon, in any economic institution. And we should just carefully watch what happens to them.

Unregulated Crypto Derivatives Exchanges Dominate Regulated Alternatives

Trading volume on unregulated Bitcoin (BTC) derivatives exchanges is growing rapidly, and continuing to far outpace their regulated-institutional counterparts, according to the most recent (March) CryptoCompare Exchange Review.

unregulated exchange volume(source: CryptoCompare)

Both OKEx and bitFlyer exchanges hosted an average daily derivative trading volume worth well over a billion dollars during March - $1.5 billion and $1.14 billion respectively according to CryptoCompare. It seems then that the older derivative stalwart BitMEX, at $645 million daily average volume, has been rapidly eclipsed by the newer exchanges.

regulated exchange volume(source: CryptoCompare)

Institutional, fiat-dealing (regulated) exchanges hosted a fraction of this volume, the highest being $70.5 million on the CME exchange. CryptoGlobe reported last month the CME’s primary competitor, the CBOE, was shuttering its Bitcoin futures products citing low demand. CME volume spiked last month, but is down this month below to January levels.

However, despite the relatively low average volume, the CME did have one bumper day of record-breaking Bitcoin futures trading volume, trading nearly $550 million worth of bitcoin on April 4th - days after Bitcoin’s unbelievable breakout from its $4,200 resistance.

Outflanked

The ease of onboarding new customers may explain why the unregulated exchanges get more attention.

In a recent interview, BitMEX CEO Arthur Hayes underlined his exchange’s ability to “onboard a [new] customer within 10 minutes,” by accepting Bitcoin and only Bitcoin for funding. In addition, no KYC/AML checks are required to trade on BitMEX, merely an email address; whereas OKEx offers margin trading only after basic KYC/AML checks. These exchanges are registered in Seychelles and Malta, respectively, specifically to avoid such onerous accounting requirements for their customers.

As CryptoGlobe covered early in 2019, however, BitMEX and other derivative exchanges including OKEx officially exclude certain citizens from trading on their platforms due to regulatory concerns, most notably US citizens.

Hayes also intimated at the upcoming launch of an interest bearing Bitcoin-only bond, which he speculated could be used to leverage credit into future Bitcoin-denominated economic activity.