Rarely, does a major economy switch its tone about the sector. That’s what seems to be happening in Russia.
As a multi-trillion dollar asset class, digital assets are simply too big to ignore. In recent years some jurisdictions such as Canada, El Salvador, and Florida have embraced cryptocurrencies, while others such as China have clamped down on the sector.
Russian authorities have been antagonistic to digital assets for years. However, regulators have swiftly changed their tune and have implemented new frameworks that legitimize the sector across the country. Little is known about what drove this shift, but here are some factors that could have played a role.
Geopolitical game theory
While this could be mere speculation, it’s difficult to see how political tensions in Eastern Europe don’t play a role in Russia’s strategic moves. The United States has threatened severe sanctions on the country and a suspension from the global SWIFT system of payments. Such a move would have devastating consequences on the Russian economy. Individuals and businesses across the country would be completely cut off from cross-border payments.
The Bitcoin network could be a way to circumvent this blockade. As an open and transparent system, the Bitcoin network can handle transactions for anyone with a software wallet and access to the internet. That means none of the intermediary banks that form the SWIFT system need to be involved.
In recent years, digital assets have gained enough scale and liquidity to handle large transactions from institutions and even sovereign states. El Salvador, for instance, has had little trouble buying BTC or issuing debt with digital assets used as collateral. The $2 trillion sector is now large enough to accommodate usage from a country the size of Russia.
While the Russian government has traditionally been skeptical of Bitcoin, Russian users have been adopting it en-masse. According to data published by according to data from tripleA, a Singapore-based payment gateway, more than 17.3 Russians hold some BTC and other cryptocurrencies. That’s roughly 11.9% of the country’s population. This implies that the domestic crypto sector is worth at least $200 billion.
The size of this industry makes it difficult to control. It also creates a powerful economic incentive for legalization.
Russia’s economic incentives
While the digital assets sector is already worth $200 billion here, it has tremendous potential for further growth. In a recent press conference, President Vladimir Putin claimed that his country had natural advantages for Bitcoin mining. The freezing temperatures during the winter make it easier to keep server farms cool. Meanwhile, access to abundant and cheap energy makes these plants more commercially viable.
All these factors could have convinced Russian authorities to embrace Bitcoin. The Bank of Russia no longer wants to ban cryptocurrencies and is proactively looking at ways to allow local banks to offer crypto trading. A similar shift in other parts of the world, such as India, could indicate that digital assets are firmly entrenched in the mainstream economy now.