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Review of Crypto Regulations in India and Russia, the Crypto Market’s “Sleeping Giants”

Crypto investors should pay attention to the regulatory developments that are happening in Russia and India.

Posted January 5, 2022

Two traffic lights and a pedestrian light
Two traffic lights and a pedestrian light

Crypto investors should pay attention to the regulatory developments that are happening in two nations that I like to call “sleeping giants” — Russia and India. 

These countries have a combined population of almost five times that of the United States. This means there is a huge number of potential retail and institutional buyers who have never tapped the crypto market. 

Not to mention, each country’s economy is also uniquely advantageous for the crypto market. India’s technological innovation in blockchain is comparable to that in Silicon Valley. Polygon (MATIC) was created in India in 2017, and 56% of Indian businesses are moving towards blockchain.

Russia’s powerful influence on the global economy may be a game changer to the crypto market if its leaders dip their toes in digital currencies. Part of the appeal of digital currencies is that they could reduce the use of US dollars, and therefore reduce the effect of US trade sanctions — more on this below.

India to finalise crypto regulations in 2022

Concerning crypto assets, India has held a classic “wait and see” stance that has long been adopted by most countries. That is, they regulate crypto assets as tradable commodities, forbid their use in payments, and study how global leaders attempt to regulate the assets.

A nauseating wave of fear and hope rippled through mid-2021, when conflicting statements emerged. Some positive and negative comments came from the Ministry of Finance. However, the RBI has always been against “privately issued currencies”. That is basically all cryptocurrencies and tokens apart from government issued central bank digital currencies (CBD).

A crypto bill, which is to be considered early this year, proposes to ban all private cryptocurrencies while making some exceptions “to promote the underlying technology of cryptocurrency and its use”.

The Parliament of India building
The Parliament of India. Source: Andy Sternberg on Flickr

The RBI’s stance on cryptocurrency regulations

The Reserve Bank of India has always been risk-averse when it comes to private cryptocurrencies. In the most recent Financial Stability Report, the RBI cited, “Private cryptocurrencies pose immediate risks to customer protection and anti-money laundering (AML) / combating the financing of terrorism (CFT).”

The central bank noted that private cryptocurrencies are prone to fraud and to extreme price volatility, which adds to a longer-term concern of macroeconomic stability, monetary policy transmission and currency substitution.

Currency substitution was a problem faced by the Turkish central bank, when it’s Turkish lira fell to the clutches of hyperinflation. Monetary policy transmission usually occurs when the central bank attempts to stabilise the economy after shocks (such as that of COVID-19 pandemic) by, for example, giving stimulus checks.

In the US financial market, central bank stimulus (including low interest rate) fueled the growth of businesses, housing, and inadvertently the crypto market.

Learn more: How U.S. Economic Policies Affect the Crypto Market

Supreme Court hints no blanket ban despite RBI’s stance

In 2018, the Reserve Bank of India (RBI) issued a warning to banks to avoid dealing with crypto firms.

However, in 2021, the Supreme Court decided to allow banks to do business with crypto firms, such as India’s centralised exchange WazirX. One of India’s giant banks Kotak was among the most recent banks to begin partnership with the crypto exchange, hinting towards positive crypto regulations in the future.

Of course, the government could suddenly decide to impose a blanket ban on all transactions relating to cryptocurrencies. However, it would be at the great expense of Kotak and other banks that have already initiated deeper connections with crypto exchanges.

The Prime Minister’s statement

The Indian Prime Minister Narendra Modi made an encouraging statement at President Biden’s Summit for Democracy that hunts another positive sign of friendly crypto regulation.

Mr Narendra Modi said, “We must jointly shape global norms for emerging technologies like social media and cryptocurrencies so that they are used to empower democracy, not to undermine it.”

Furthermore, reports suggested that he would take the final decision on how cryptocurrency will be regulated in India. Of course, the Prime Minister could still consider the option of allowing all crypto products but with scrutiny, or a partial ban with a select few exceptions, as proposed by the bill. 

Russia’s crypto regulation framework still premature to make final decisions

Like the RBI, the Russian central bank has argued against cryptocurrencies for years. The central bank, however, gave cryptocurrencies a legal status in 2020. Unsurprisingly, it still banned their use as a substitute for the Russian rouble. 

Recently, the Russian central bank sought to ban investments in cryptocurrencies. Indeed, their stance is a “complete rejection” of all cryptocurrencies, with no exceptions. In the meantime, the central bank is planning to issue the digital rouble to “counter a potential threat from other cryptocurrencies.”

The Russian Central Bank
The Russian Central Bank. Source: Фотобанк Moscow-Live on Flickr

President Vladimir Putin’s stance

Russian President Vladimir Putin is still generally skeptical of investments in cryptocurrencies.

In November 2021, he made the following remarks (translated by Cointelegraph), “It is not backed by anything, [and] the volatility is colossal, so the risks are very high. We also believe that we need to listen to those who talk about those high risks.” 

However, he still believes that cryptocurrencies have value, but it is too early to consider using alternative, decentralised money for global trade. 

“I believe that it has value,” he told CNBC in October 2021. “But I don’t believe it can be used in the oil trade … it may exist as a means of payment, but I think it’s too early to say about the oil trade in cryptocurrency.”

The Russian leader also remarked that the US dollar is a “universal reserve currency”. However, he said that US leaders have used it to pursue political goals at the expense of harming their economic interest as a result.

Indeed, there has been talks of replacing the US greenback as medium of exchange between Russian exporters and foreign importers. 

Untapped income for Russia’s tax department

Chairman Anatoly Aksakov of the Duma Committee on Financial Markets is supportive of crypto-related businesses, such as mining and exchanges. 

He said that if the crypto regulatory framework is better developed, “it would be easier for the Federal Tax Service of Russia to tax [mining and exchange] transactions.” 

Currently, Russia’s crypto regulatory framework is under-developed. However, at the increasing pace of global cryptocurrency adoption, President Vladimir Putin called for greater monitoring and regulation.

Meanwhile Mr Aksakov believes that it would be difficult to impose a complete blanket ban on cryptocurrency. “There exists a very tough approach about the complete prohibition of cryptocurrencies, such as acquisition or ownership,” he said, “There [also] exists an approach where there must be appropriate crypto exchanges, where everything is legalized, transparent and understandable to regulatory bodies.” 

Crypto regulation in Russia still uncertain

Once again, the Russian government must come to a consensus of accepting the risks of adopting new technology, in order to pursue their economic interests. 

At the time being, things seem as though no progress has been made. Russian authorities prefer to prioritise the launch of the digital rouble. Financial services are barred from offering crypto-backed mutual funds. 

Furthermore, regional governors are creating cost barriers for crypto miners. According to a report, local governors were given the right to “independently define the maximum amount of electricity consumption”.

Anyone who exceeds this maximum consumption limit will be subjected to higher rates, set at the discretion of regional governments. Of course, crypto miners will exceed this maximum limit far more than what residential homes would consume. 

That is, unless crypto miners don’t mine at home, and are registered Russian business entities that could get special operating privileges. Last month, a Russian lawmaker announced that his party is working on a draft bill to make it illegal for unauthorised power use, especially for crypto mining.

The takeaway

While there are reasons to be optimistic about India’s development in regulating crypto, not much can be said for Russia. However, we shouldn’t be too pessimistic, either. Russia is currently at the “consideration stage”. If crypto business models prove to be successful and safe for consumers, the biggest nation in the world may buy into it. 

Both India and Russia can influence the crypto market in surprising ways. If you believe that mass adoption will take place in the near future in both countries, you could bet on it at the current market price.

Of course, please make sure to do your due diligence before making an investment.

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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.

Last updated October 18, 2022

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