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The latest hype around alleged Russia’s multi-billion dollar buying ofseems to be greatly exaggerated. The cryptocurrency community has been excitedly discussing a ‘clever Russian plan’ to escape dollar dependency and mitigate the impact of Western sanctions.
Numerous media outlets caught up and disseminated the ideas of Kremlin economist Vladislav Ginko, who announced that the Russian government is prepared to invest about $10 billion into Bitcoin (BTC) to diversify its reserves.
[bctt tweet=”If proved to be true, this sum would mean Russia would become a holder of almost a sixth of the total world’s Bitcoin supply.” username=”beincrypto”]
The news seemed valid as Russia’s President is a keen advocate of a blockchain technology and innovations. Besides, Mr. Putin is looking for alternative ways of savings and transactions under Western sanctions. Russia has already increased its reserves in the euro, yen and Chinese yuan — so why not also Bitcoin?
The crypto community enjoyed talks of such a large buy order and how the prices might skyrocket. People suggested that with Russia as the main Bitcoin buyer, the market would not need to wait for big institutional investors any longer. Some even declared it the new topic of the year, similar to the Bitcoin ETF being the keynote in 2018.
Now the narrative for 2019 is going to switch from Bitcoin ETF to Putin buying all of the Bitcoin in the market 🤦♂️
— Joseph Young (@iamjosephyoung) January 14, 2019
Indeed, diversifying into digital assets might seem rational for the sanctioned country. However, at this stage, it is neither practically nor theoretically viable. The main reason being that Russia cannot buy assets that are not regulated in Russia.
Investors overlooked this fact amid the hype provoked by Ginko’s comments. Notably, back in summer 2018, this economist also made similar claims of Russia moving from dollar-based assets to Bitcoin and the CryptoRuble, although neither ended up coming to fruition.
Meanwhile, Elina Sidorenko, the Head of the State Duma’s (the lower chamber of Russia’s parliament) Task Force for the assessment of crypto risks, clearly denied Ginko’s allegations — although her comments failed to gain wide traction online.
Sidorenko believes that Russia is still decades away from the practical implementation of this idea as Russia, along with any other country worldwide, is not ready to merge its traditional financial system and cryptocurrencies just yet.
Apart from the lack of proper financial and tech infrastructure, Sidorenko noted that there was no legal framework for crypto regulation and adoption in Russia.
The country has no mechanisms to facilitate the smooth functioning of the entire system, even at the most basic levels of where and how to store digital assets. Who would be responsible for their storage and management? How could it prevent their misuse and what would be the penalties for abuse?
Russia’s current legislation does not have any answers to those crucial questions considering how risky of an asset cryptocurrency are.
What is more, Russian lawmakers are in no hurry to adopt cryptocurrency regulations. At the moment, the State Duma plans to discuss a long-awaited draft bill on digital financial assets within the next two months.
The legislators initially planned to approve the legislation by June 2018, however, the second meeting has been repeatedly postponed for a more comprehensive analysis and assessment.
Russia may be desperate to avoid sanctions de-dollarizing its economy, but investing a big part of its national wealth into virtual assets does not sound like the greatest idea.
According to the latest comments of Dmitriy Medvedev, the prime minister of the Russian Federation, digital money is an interesting concept, but it is still immature. The establishment often considers Bitcoin as a highly speculative and volatile asset, often referring to it as a bubble. The crash of 2017 and 2018 is a good reminder of this potential threat.
Elvira Nabiullina, the head of Russia’s Central Bank, is also very cautious about digital currencies. She believes that numerous fraud cases, crypto-based Ponzi schemes, and money laundering makes them useless as a store of value.
Thus, the establishment in Russia might hold cryptocurrency for personal gain, but it is highly unlikely that digital assets will be used for government investing any time soon.
Still, the crypto community finds much amusement in this idea urging to start a competition between Trump and Putin. However, one Twitter user jokingly warned that Russia’s national animal is a bear.
Do you believe it would be prudent of the Russian government to invest in digital assets? Let us know your thoughts in the comments below!
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