Bitcoin price falls due to possible ban in Russia

Following the Russian central bank’s announcement on Thursday to ban the use and mining of Bitcoin and other cryptocurrencies, the price of the cryptocurrency continued to sink in the market this week.

The Russian issuer argued that cryptocurrencies pose a threat to financial stability. He explained that the sovereignty of monetary policy and the welfare of the citizens of that country were in danger.

Bitcoin fell below $40,000 on Friday to settle at 38,789.17 (11: 48 a.m. New York time), as the global market reacted to the cryptocurrency selloff.

Although since 2020 the possession and storage of cryptocurrencies is legal in Russia, its use as a means of payment is prohibited. For several years, the Russian government has denounced that crypto assets can be used in criminal activities such as money laundering or terrorist financing.

Prohibition announcements sink cryptocurrencies

After China banned cryptocurrencies in September last year, Russia became the third country with the highest hash rate (bitcoin mining), just behind the United States and Kazakhstan.

However, the latter country has seen an exodus of miners in recent weeks. Public outrage over blackouts caused by mining, anti-government riots earlier this month, and fears of more stringent regulation, have led to a stampede of miners.

So far this year, the price of Bitcoin has fallen by around 22.4%. At the end of December, the price of the decentralized digital currency reached a maximum of US $48,553. BTC has been trading at lows not seen since last August.

Ethereum, the second cryptocurrency in market capitalization it has also fallen sharply. On Friday it was down nearly 9% to $2,857. Followed by all the other cryptocurrencies that have been dragged down by the bear market of the last few weeks.

This It is the latest strong measure against the cryptocurrencies that have been attacked by the governments of the East and the West, although with different approaches. Governments and central banks around the world fear losing control over the financial system.

The The main fear is that highly volatile and decentralized cryptocurrencies will end up replacing fiduciary money and causing a revolution in the global financial system.

Crypto Risk Warnings

A report from the central bank of Russia published this week considered that the speculative demand for cryptocurrencies is what has largely determined their rapid growth.

He also warned that private digital currencies have all the characteristics of a financial pyramid. The issuer has warned that they could cause dangerous bubbles in the market, which in turn poses a threat to financial stability and users.

The bank’s proposal seeks to prevent banks from carrying out operations with cryptocurrencies. Likewise, it proposes the development of mechanisms that serve to block the purchase and sale transactions of cryptos or their exchange for fiduciary currencies.

The measures proposed by the Russian central bank include cryptocurrency exchanges. On this proposal, Binance told Reuters that it was committed to working together with regulators.

The exchange hopes that after the publication of the report, a dialogue with the central bank of Russia will be initiated. The company considers it appropriate to address everything related to the protection of Russian crypto users.

However , the head of the financial stability department of the central bank, Elizaveta Danilova, clarified that for now it is not planned to implement restrictions on the possession of cryptocurrencies.

Currently, in Russia active users of cryptocurrencies move an annual volume of transactions close to 5,000 million dollars, the bank reported.

Russia denies copying China

In its report, the Russian central bank announced that it will work in coordination with the regulators of countries where cryptocurrency exchanges operate, including China. The body seeks to collect information related to the operations of Russian citizens.

Like China, Russia wants to minimize all activities involving cryptocurrencies. Ever since China stepped up the crackdown on BTC miners and banned their use, the price of cryptocurrencies in general has taken a hit.

“For now there are no plans to ban cryptocurrencies similar to China’s experience”. The approach we have proposed will suffice,” Danilova said.

On the other hand, the head of financial strategy of the crypto company Solrise Group, Joseph Edwards, downplayed to the report of the central bank of Russia. He pointed out that no one outside that country would be worried about what he said.

“Moscow, like Beijing is always waving its saber about ‘crypto bans,’ but Russia has never been a mainstay of any facet of the industry in the same way that China has been at times,” Edwards said.

The bank argues that crypto mining generates environmental problems due to high energy consumption. Often to mine BTC and any other cryptocurrency, large amounts of electricity are used to power computers connected to a global network.

The “best solution” is to ban mining

Computers work endlessly day and night in large mining farms solving complex mathematical problems. During the process, high emissions are generated because fossil fuels such as petroleum derivatives are generally used.

“The best solution is to ban cryptocurrency mining in Russia”, the bank has sentenced.

A report by the Cambridge Center for Alternative Finance (CCAF), determined that the hashrate rate – which measures the electrical consumption of the computers used in the mining of Bitcoin- from Russia for July 2021 was 11.2%.

Similarly, the latest data available in Statista, place Russia in 17th place worldwide in the use of cryptocurrencies.

BitRiver which provides hosting for cryptocurrency mining, does not believe there will be a total ban on cryptocurrencies in Russia. The Moscow-based company, which operates several data centers in Siberia, is optimistic about the final decision of the Russian government.

He rather hopes that after the proposal is discussed with all other government agencies, a more balanced decision will come out.

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The digital ruble does not want competition

As in China, where the implementation of the digital yuan is progressing rapidly, in Russia the central bank also plans to issue a digital ruble or central bank currency (CBDC).

This is why they need to prevent any type of competition against their own digital currencies. Cryptocurrencies like BTC, ETH or Lithecoin are private money, over which governments have no control.

The Russian bank maintains that if the use of cryptoactives becomes generalized in the population, the sovereignty of monetary policy is limited. He adds that it would be necessary to establish higher interest rates as a measure to curb inflation.