Russia makes U-turn on cryptocurrencies while China bitcoin exchanges await clarification on closure report

Bitcoin fell sharply after Chinese financial publication Caixin reported that China was planning to shut down local crypto-currency exchanges, although analysts said this was just a temporary setback.
Bitcoin fell sharply after Chinese financial publication Caixin reported that China was planning to shut down local crypto-currency exchanges, although analysts said this was just a temporary setback.PHOTO: REUTERS

MOSCOW (BLOOMBERG, REUTERS) - Russia is drawing up rules about how to conduct initial coin offerings, breaking ranks with China after President Vladimir Putin signaled his approval for digital currencies.

While China slapped a blanket ban on ICOs, which have raised at least US$1.25 billion globally so far, the government in Moscow plans to regulate cryptocurrencies like securities rather than outlawing them, Finance Minister Anton Siluanov told reporters on Friday (Sepy 8). That marks a full reversal from his ministry's proposal last year to punish people who use digital currencies with up to seven years in jail.

Appetite for the new instruments has been growing ever since Putin met in June with the founder of the world's second-largest cryptocurrency after bitcoin and gave his blessing for Russia to develop blockchain, the technology underlying bitcoin. A consortium of lenders including Sberbank PJSC is now seeking to use the technology to cut costs, while a presidential aide last month announced plans for an ICO.

China's Bitcoin exchanges are also awaiting clarification from the authorities on a media report that they will be shut down.

Bitcoin fell sharply on Friday after Chinese financial publication Caixin reported that China was planning to shut down local crypto-currency exchanges, although analysts said this was just a temporary setback.

The news follows China's move earlier last week to ban so-called "initial coin offerings," or the practice of creating and selling digital currencies or tokens to investors in order to finance start-up projects. Reuters was not immediately able to verify the report.

A spokeswoman for Beijing-based OK Coin said the platform has not received any notification from regulators. Spokespersons at Beijing-based Huobi and Shanghai-based BTCC said they were still waiting for further official clarification.

In Russia, Siluanov told reporters in Moscow: "The state certainly understands that cryptocurrencies are a reality, there is no point in prohibiting them. It is possible to regulate them, so the Finance Ministry will draw up a bill by the end of the year."

That reality wasn't always apparent in Russia. Before Putin's meeting with Vitalik Buterin, the Russian-Canadian founder of Ethereum, the legal status of cryptocurrencies was unclear.

Since then, a company co-owned by the president's internet ombudsman, Dmitry Marinichev, has announced a plan to raise US$100 million in an ICO to fund a domestic digital currency-mining operation. Herman Gref, Sberbank's Tesla-driving chief executive, has put the weight of Russia's biggest bank behind a modified ethereum protocol dubbed Masterchain to make interbank money transfers safer and faster.

Not all Russian officials are believers, however. Bank of Russia Governor Elvira Nabiullina warned on Friday at the same forum that there was "gold fever" surrounding digital currencies and said that they shouldn't be used as a surrogate for money.