Over the past three months a seemingly endless and often contradictory series of pronouncements on the subject have emerged from the central bank, various ministries and the Kremlin itself. One day virtual currencies are a pyramid scheme and a facilitator of criminal activity, the next they are a valuable growth industry and potential funding tool. And vice versa.
Clearly, this dilemma is not unique to Russia. To date, the number of countries where politicians and regulators have come up with a clear stance on a new technology whose implications and indeed workings are little understood can be counted on the fingers of at most two hands.
Even in this confused environment, however, Russia’s flip-flopping has stood out – and all the more so because, until recently, the official line had been fairly consistent. Bitcoin was bad, mad and should be banned. More outspoken opponents were arguing for lengthy prison sentences for anyone caught messing with it.
The first sign that attitudes were changing came in April, when the government announced plans to scrap a draft bill outlawing cryptocurrencies that had been in the works since 2014. Policymakers began to talk about the need for regulation rather than prevention.
In June the crypto cause received an unexpected boost when the Kremlin issued an enthusiastic statement after president Vladimir Putin met briefly with Vitalik Buterin, the Russian-Canadian co-founder of Ethereum, at the St Petersburg International Economic Forum.
By September, however, the sceptics once again seemed to have the upper hand. Senior central bank officials, including governor Elvira Nabiullina, took it in turns to emphasize the dangers of cryptocurrencies. One even hinted that Russia would follow China’s example and ban initial coin offerings (ICOs) outright.
Then in October, barely two weeks after first deputy governor Sergey Shvetsov had said cryptocurrencies carried an “unreasonably high risk”, the tide suddenly turned again. First of all, senior politicians began making positive noises about ICOs. Then Putin himself stepped in.
This is a complete dilettante world. All the ICOs that are being brought out now… Well, let’s just say lots of people are going to be going to prison- Local commercial banker
On October 24 the Kremlin published five presidential orders mandating the establishment of a legal framework for digital currencies by next July. These covered everything from ICO regulation and proposed taxes on bitcoin miners to the creation of a regulatory sandbox for blockchain technologies.
And that was that. Well, not quite. In late November communications minister Nikolai Nikiforov announced that the Russian government would never legalize virtual currencies. Meanwhile, work appeared to be proceeding apace on plans for an official cryptorouble.
Confused? So is everyone. “They’re playing a game of ‘yes you can, no you can’t, well maybe you can but only like this,’” says an investor in Moscow. “It makes it very difficult to invest in areas related to cryptocurrencies.”
Not all Russian cryptocurrency enthusiasts have waited for a green light from the authorities, however. ICOs by entrepreneurs and companies from the jurisdiction are estimated to have raised $293 million in the year to November, or around 10% of the global total, despite the fact that the format is effectively illegal in Russia.
In a move that in some countries might be considered to constitute a conflict of interest, the largest of these offerings was launched by Russia’s internet ombudsman. In October Dmitry Marinichev raised $43 million through an offshore ICO to fund a massive expansion of his bitcoin mining operation.
Others are also trying to position Russia as a potential leader in bitcoin mining. In September the governor of the Leningrad region told local media that a new nuclear power plant could be used to power cryptocurrency mines.
Siberia’s surplus energy is also frequently cited as a potential power source for bitcoin mining. A venture capitalist in Moscow told Euromoney in November that he had been in discussions about using hydroelectric power in Magadan, a former Gulag town in Russia’s extreme east, to mine bitcoin.
At the other end of the scale, the number of individuals already mining bitcoin in homes across Russia is thought to have reached 50,000 and is reported to be growing rapidly.
Meanwhile, the Moscow financial community’s attitude to cyptocurrencies seems to be oscillating between enthusiasm and scepticism.
Bankers from VTB, including chairman Andrey Kostin, have accentuated the negative. The head of fellow state-owned bank VEB, however, said in August that ICOs offered an opportunity to attract cash into the Russian economy.
Oleg Tinkov, the famously flamboyant founder of Tinkoff Bank, said in October that the “time was right” to issue TinCoin. “I have a feeling pole position technologically is slipping away from us,” he said. In true Tinkov style, the message was appended to a Facebook post of him sunning himself on a yacht.
Others note the longer-term potential of the cryptocurrency concept, mainly as a sort of turbocharged combination of loyalty programme and fund-raising device for established consumer brands. But in the short term most want to stay well away.
“This is a fad that’s going to get broken one way or another fairly soon, so there’s obvious reputational risk,” says an experienced Moscow financial player.
A local commercial banker is more forceful. “This is a complete dilettante world,” he says. “All the ICOs that are being brought out now… Well, let’s just say lots of people are going to be going to prison.”
His verdict is to some extent confirmed by a senior financial PR, who tells Euromoney his firm has received “dozens” of enquiries from would-be ICO candidates in Russia. While a few have merit, he says, most are speculative at best.
“We’re trying to look at these from a traditional investor relations standpoint and they just don’t make sense,” he says. “Frankly we can’t work out what the point of them is.”