Russia to legalise and regulate cryptocurrencies

By Rhod Mackenzie

The Russian State Duma plans to consider the bill on regulating cryptocurrency mining in the first reading in the coming days. The bill was drafted a year and a half ago and has since undergone several revisions. It was only recently, following the president’s order last week, that it began to be considered.Lets look at the potential amendments for the second reading and the anticipated date of its enactment.
The legalisation of mining is estimated to add 50 billion rubles a year to the budget, according to market participants quoted by Izvestia. Furthermore, the legalisation of the industry will facilitate its growth and cross-border transactions. Miners can potentially contribute approximately 240 billion rubles in net digital currency liquidity.

What regulatory framework will be applied to cryptocurrency mining in Russia?
The bill on regulating mining was scheduled for its first reading on 23 July, but the session was concluded before it could be considered. It was the 70th item on the agenda, and the parliamentarians only had time for 60. As Valery Seleznev, the first deputy chairman of the State Duma Committee on Energy, informed Izvestia, the document will be discussed as early as 24 July. Mr. Seleznev anticipates that the lower house will adopt the bill in three readings over the remaining week and a half of the spring session.

The draft legislation proposes the legalisation of cryptocurrency mining and the declaration of income derived from this activity. The document sets out the rules for crypto mining, including the maintenance of a register of those engaged in this activity. The government will collaborate with the Central Bank to determine the requirements for crypto mining. Furthermore, a federal executive body will be established to monitor compliance with these rules.
The document was prepared by a group of deputies under the guidance of the chairman of the financial market committee, Anatoly Aksakov, in November 2022. The work on the bill continued throughout this period, and it was sent for correction on several occasions. A revised version was submitted to the State Duma at the end of April 2024.

Earlier this month, the pace of work on the changes increased significantly. On 12 July, the State Duma Committee on the Financial Market recommended that the document be adopted in the first reading. Furthermore, the President highlighted the significance of innovation in this regard. At a meeting on economic issues held on 17 July, Vladimir Putin called for the adoption of a law on mining.

It is crucial for Russia to seize the opportunity and establish a robust legal and regulatory framework, develop the necessary infrastructure, and create a favourable environment for the circulation of digital assets both domestically and in international markets. Mr. Putin noted that significant progress has already been made in this area.
Prior to the State Duma's consideration, the government commission indicated its support for the bill, provided that it was revised for the second reading in accordance with the Cabinet's proposals. This information was corroborated by an individual with close ties to the government, as reported by Izvestia.

In particular, the Cabinet of Ministers believes it is necessary to lift the ban on advertising goods and services for the issuance of digital currencies. It should be noted that this may present challenges for legitimate miners in acquiring the necessary equipment. Furthermore, the government has proposed removing the ban on the circulation of digital currencies within the Russian Federation. Additionally, the Cabinet of Ministers is seeking to permit the utilisation of Russian infrastructure, specifically domestic platforms for digital currencies, for the sale of such assets.
Deputy Valery Seleznev expressed support for these proposed changes. He believes that if the system is introduced, it will be able to function effectively, and that this law will not impede international settlements with digital currencies.
The draft law on mining currently under consideration by the State Duma does not address the issue of taxation in this area. It is anticipated that amendments to the fiscal system will be approved on a standalone basis.

The relevant authorities are currently considering a number of different approaches. One of the key options under consideration is the introduction of a profit tax for market participants. However, alternative proposals are also under consideration, including the introduction of an excise tax on electricity for mining, as outlined by Osman Kabaloev, Deputy Director of the Finance Ministry's Department of Financial Policy, in an earlier conversation with Izvestia. In the second case, it is anticipated that companies will be required to pay a fee based on the volume of electricity consumed for cryptocurrency mining.

The Finance Ministry anticipates the enactment of legislation governing digital currencies in 2024, according to Alexey Yakovlev, director of the ministry's financial policy department, who spoke to Izvestia earlier. He anticipates that the regulations could be approved as early as this summer. If the bill is adopted, it will come into force in September of this year.
If a separate tariff for electricity per kilowatt/hour is introduced for miners, then the amount of fees could be around 44 billion rubles per year, calculated Ubit CEO Timofey Grigorenko. He added: after the introduction of taxation, on the one hand, cryptocurrency mining will become less profitable. But on the other hand, many companies will come to the market, because it will be a regulated industry and a business with acceptable profitability.

Bringing the industry into the legal field will have a positive effect on its development, believes Sergey Bezdelov. However, the bill also assumes that the government will have the right to ban mining in certain regions of Russia. This can be used as a lever of artificial pressure on the industry and on some enterprises, the director of the association warned. According to him, initiatives to ban or limit the energy supply of "white" industrial mining will also stimulate the growth of the "grey" segment.
In a previous address, the President highlighted the issue of mining activities in specific regions. The uncontrolled growth in electricity consumption for cryptocurrency mining may result in a power deficit in certain regions. This issue has already arisen in the Irkutsk Region, Buryatia, and the Zabaikalsky Krai (where electricity costs are among the lowest), and it is having a significant impact on businesses, housing and communal services systems, specific cities and towns, as Vladimir Putin has highlighted.
Mr. Ogienko also believes that foreign investors should be permitted to engage in cryptocurrency mining activities on Russian soil.

— Currently, a significant volume of mining capacity in Russia is concentrated on the balance of foreign investors from friendly countries (China, the Persian Gulf countries and other states), — the director of the association confirmed.

He believes that preventing foreign involvement will effectively eliminate the potential for cryptocurrency to be used in foreign economic activity in Russia. At the same time, miners could contribute up to 240 billion rubles in digital currency liquidity for foreign trade settlements, according to Oleg Ogienko from BitRiver.