Cryptocurrency (or crypto, for short) is a digital currency that you can use for transactions. It appeared after the economic crisis of 2008, as a means for people to engage in transactions without the need of governments or banks while their privacy was protected.
Cryptocurrencies consist of digital files and their existence and transactions are secured by using strong cryptography. The main difference of cryptocurrency from other forms of currencies is that it generally uses decentralized control. This means that cryptocurrencies exist through a network of thousands and thousands of different devices.
Most cryptocurrencies use a blockchain system. In essence, this system prevents the same digital coins from being spent more than once without using a central figure or server where everything is connected to, adding to the protection of privacy.
The main advantages of cryptocurrency are that it is not affected by inflation, it is self-governed and it is secure and private, provided that proper security measures are in place. They can give you amazing returns in very short periods, and are often easy to liquidate. On the other hand, they can also cause you a lot of loss due to their volatile nature, and are susceptible to hacks through the wallet data the exchangers store in their servers. Since their usage is secure and, in most cases, provide anonymity, they can also be used for illegal, criminal activities, which regular users end up contributing to in an indirect way.
The first cryptocurrency, Bitcoin, emerged in 2009 and the identity of its creator is still unknown. Today, there are more than 6700 cryptocurrencies that are publicly traded, each one having different market values but have a total market cap over $1 Trillion as of January 2021. In the figure below, you can see just how the total market capitalization of cryptocurrencies have changed since 2017.
Russia’s Importance in The Cryptocurrency Market
Although cryptocurrencies are designed to be decentralized and thus not dependent on any single country or institution, there are countries where they have been integrated more to the economic culture. One of these countries is most certainly Russia.
Kim Brauer of Chainalysis has said that even though there is legal uncertainty about the usage of cryptocurrencies in Russia, people continue to use cryptocurrencies for trading, cross-border payments, store of value, and even criminal activity. Let us take a look at how Russia approached the crypto market over the years.
Back in 2017, when the total market cap was around $200 Billion (a fifth of what it is today), Russia changed their stance on cryptocurrencies to a positive one with President Putin’s announcement, where he said the state should regulate cryptocurrency mining and circulation. This was quite a large step in the positive direction considering that the Ministry of Finance wanted crypto users to be jailed for up to 7 years.
Just 1 year later, in 2018, Russia asserted itself as a formidable force in crypto development. Moscow took top place for the number of crypto founders looking for initial coin offerings, or initial investments for their projects. Bitcoin News also reported that cryptocurrency was the main source of income for 12% of Russian crypto users, rather than just an investment method.
In 2019, Russia introduced a bill aimed to better regulate cryptocurrency, which tried to legally establish the concept of ‘digital laws’.
In mid-2020, Russia introduced a law where cryptocurrencies themselves were not banned, but using them for goods and services were not allowed, starting from 2021. In September 2020, Russian Press Agency reported that only 1 in 10 Russian bank users were comfortable with investing in cryptocurrency. A reason for this may be the volatility of cryptocurrencies. A very recent example is Dogecoin, whose price increased by 50% on 4th of February after Elon Musk tweeted “Dogecoin is the people’s crypto”, and “No highs, no lows, only Doge”. The rise of Dogecoin shows the high return chance of cryptocurrencies considering that it emerged only as a joke in 2013 and came to a market cap value of $12 Billion as of February 2021. However, the same coin could have very well took a dive with a negative comment.
Despite this reluctance, Chainalysis reported that Russia had the 2nd highest level of day-to-day crypto usage in the world in September 2020.
Although Russia kept growing as a powerful force in cryptocurrency, they have taken a step back with the recent government decision, banning officials from holding cryptocurrencies. The decision says that all government officials and their underage family members must dispose of their digital assets until April 1.
Although the number of Russian officials who own cryptocurrencies or the amount they hold in their possession is unknown, this decision may cause a substantial increase in the number of cryptocurrency sellers. Since cryptocurrencies are run on a peer to peer system, if more people want to sell than buy, the price will inevitably go down, although how much it would remains unknown. Considering that Russia came in second in daily crypto usage just recently, this is a very real possibility and there even may be a crypto crash as a result.
The possibility of this happening may sound far fetched, but a very similar incident happened in 2018 when a substantial sell off of cryptocurrencies happened. Bitcoin lost more than half its value in 2 months at the start of the year, whereas the crypto market lost 80% of its value in total by September 2018.
Another point of interest is hidden in plain sight in the first figure of this article. If you look at Sep 17 – Jan 18 and Sep 20 – Jan 21, there is a very apparent similarity between the trends. In 2018, this trend continued with a significant crash. We will have to wait and see what will happen this time around.