- Miners flocked to Russia and Kazakhstan after China crackdown
- Bank of Russia warned that the growth of cryptocurrencies was a threat to retail investors
- Russian citizens’ transactions with cryptocurrencies reach $5 billion per year
Stocks of major cryptocurrency trading platforms plummeted today after Bitcoin sank below $39,000 on news of an impending ban on trading and mining in Russia. Coinbase lost 5.6% in premarket trading, Marathon Digital (MARA) declined 8.18%, Riot Blockchain (RIOT) dropped 8.7%, MicroStrategy (MSTR) fell 8.49%, and Bit Digital (BTBT) was down 5.85%, Barrons wrote.
Miners moved to Russia after Chinese ban
After China’s crackdown on cryptocurrencies last year, when it banned all transactions and crypto mining, miners flocked to Russia and Kazakhstan. Along with the US, these are the three biggest countries in Bitcoin mining.
After the energy crisis in Kazakhstan, which was at least partially provoked by mining, Russia apparently took notice. On Thursday, the central bank issued a statement, which induced a poor market reaction to say the least.
Growth of crypto is a threat
The Bank of Russia warned that the growth of cryptocurrencies was a threat to retail investors and might ban production and trade of digital assets soon.
The bank released a consultation paper titled “Cryptocurrencies: trends, risks, and regulation”, in which it wrote that the amount of Russian citizens’ transactions with cryptocurrencies reaches $5 billion per year according to estimates. Russian individuals are active users of online cryptocurrency trading platforms and Russia is one of the global leaders by mining capacity.
Limited use cases
The bank writes:
In the long run, the potential of using cryptocurrencies for settlements seems limited. The rapid growth of their market value is predominantly spurred by speculative demand and expectations of a further rise in their prices, which leads to the formation of a bubble in the market. Cryptocurrencies also have signs of a financial pyramid as increase in their prices is largely driven by demand demonstrated by new market participants.
The growth of cryptocurrencies use creates threats for Russian retail investors, financial stability and threats associated with the use of cryptocurrencies for illicit activities.
They highlight the following risks:
High volatility and proliferation of fraud
Cryptos limit monetary policy sovereignty
Cryptos are extensively used in illegal activities
The bank also expresses concern that the popularity of cryptocurrencies could bring people withdraw their savings from the Russian financial sector and decrease its capability to finance the real sector. They conclude that it is not possible to ensure full transparency of cryptocurrency transactions.
Global ramifications
Subsequently, crypto-related stocks took a plunge in Europe as well. The biggest loser was Argo Blockchain with losses of over 10%. Arcane Crypto lost 4.43% and Online Blockchain dropped 7.49%. At the time of writing, Bitcoin was trading for $38,750, down more than 10% over the past 24 hours.
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