Cryptocurrency investments have surged in Russia
Cryptocurrency investments in Russia grew 10-fold to about $200 million in 2017 (as compared to $20 million in 2016). The year saw over 100 Russian startup projects being funded via cryptocurrencies, as compared to just 20, the previous year. Key drivers for this shift in financing in Russia from the traditional channels to cryptocurrencies can be attributed to:
- Disinclination by the banks in Russia to finance high-risk projects
- Harsh conditions imposed by venture capital firms for funding projects
- Strikingly high rate of return, breaching 30,000% in some successful ICO projects
- Growing popularity of cryptocurrencies within Russia
Investments into mobile gaming platform MobileGo ($53 million), the Russian Mining Company ($45 million) and the supercomputer SONM ($42 million) are few among the most prominent projects that have been financed with cryptocurrencies in the country.
1 key deterrent to cryptocurrency investments in Russia
The only little hurdle that project financing via cryptocurrencies has faced in 2017 relates to regulation. The absence of regulation on cryptocurrency investments and trading has deterred some financiers and investors from joining in. Nonetheless, the overall Russian sentiment towards Bitcoin gas been quite positive. According to a survey conducted by the All-Russian Center for the Study of Public Opinion, or VCIOM, 75% of individuals between ages 18- 24 have learned about Bitcoin, and 74% of Russia’s capital Moscow’s population is now aware of the cryptocurrency. The growing popularity of cryptocurrencies in the economy prompted the Russian Finance Ministry to finally issue a regulatory document to its effect.
Russia’s draft regulation on Digital Financial Assets
The regulatory document dated January 25, 2018, and titled RUSSIAN FEDERATION FEDERAL LAW “On Digital Financial Assets,” issued by the Ministry of Finance (MoF) in Russia, defines a digital financial asset as [translated] a property in electronic form, created using cryptographic (cryptographic) means” and that “Validation of a digital record is a legally valid action.”
For cryptocurrency exchange operators, the regulation states [translated] that these operators will be considered legal entities only if they are established in accordance with the legislation of the Russian Federation and carry out the types of activities specified in Articles 3 to 5 of Federal Law No. 39-FZ of April 22, 1996, else if they are legally established as organizers of trade in accordance with the Federal Law of November 21, 2011, No. 325-FZ On Organized Trading.
Additionally, the document contains the legal definition of key terms used in cryptocurrency trading, such as a digital record, distributed register, participants, validator, mining, cryptocurrency, token, and smart contract, along with certain caveats for token issuances and the contents of the investment memorandum.
The regulation, as mentioned above, shall come into force in 90 days from January 25th. So, with the new regulatory draft in place, should we expect more Russia-based investors and financiers to join in, raising the bar for 2019? Or, will regulation serve as a dampener to the cryptocurrency investment climate in Russia?