Cryptocurrencies Pose No Risk to Stability, Russian Analytics Say

According to the Russian Analytical Credit Rating Agency (ACRA), the high volatility of cryptocurrencies can potentially create risks for the country’s financial stability, but these are balanced by the high concentration of ownership of the digital assets.

ACRA estimates that the market value of the cryptocurrency attributable to the Russian economy or controlled by Russian residents has been between $7.5 and 14 billion in the first quarter of 2018. That’s only 1-2% of the M2 money supply in Russia. The global ratio is even lower at 0.5%, Bitcoin.com reports.

Comparison between the M2 money supply by countries and the market capitalization of cryptocurrencies, in trillion USD (Coin Dance, IMF, 2017)

The study is based on statistics measuring the Russian share of the global economy and money supply, as well as data about the structure of the turnover registered on crypto exchanges. The researchers note that it is still quite difficult to accurately estimate the share of cryptocurrencies against the money supply in the country, as the assessment is limited by the opacity of the cryptocurrency markets, the anonymity of crypto users and the use of cryptocurrency in cross-border settlements.

The authors point out that a number of factors can influence the volume of cryptocurrency owned by the residents of a given country. These include the level of development of financial markets and venture investing, the central bank’s policies, the stability of the national fiat currency, the inflation dynamics, and the rigidity of government regulations. They believe that the increase of market capitalization of cryptocurrencies, their acceptance as unit of account, the introduction of liberal regulations for ICOs and crypto payments can stimulate growth in the sector.

The experts at ACRA see very little chance of crypto volatility affecting consumption in Russia. They claim consumption will decrease only by about 1% if cryptocurrency price shocks cause a 6% drop in the volume of liquid savings. In current prices, this corresponds to approximately 1.5 trillion rubles.

“However, due to the huge distortion in the distribution of crypto assets, their volatility is not reflected in consumer spending,” notes the report, quoted by Kommersant.

The analysts also say that if the use of cryptocurrency increases in Russia, the Central Bank can employ the same monetary policy instruments it currently applies in regards to foreign currencies. In case crypto markets remain opaque, digital currencies can be treated like foreign cash, and if the bank is successful in tracing crypto transactions, digital coins can be regarded as electronic foreign currency funds.

The Central Bank of Russia has previously opposed the legalization of cryptocurrencies as legal tender and unit of account. The legislation currently under review in Russia’s parliament can change that to a certain extent. It has been reported that some texts allow the use of tokens and coins in settlements, although, unlike the ruble, cryptos will not be considered a mandatory means of payment in the country.

Of the three drafts approved on first reading by the State Duma, the bill “On Digital Rights” deals with crypto payments. The other two, “On Digital Financial Assets” and “On Attracting Investments Using Investment Platforms”, aim to regulate initial coin offerings (ICOs), crypto mining and taxation.

The proposed legislation describes cryptocurrencies and tokens as electronic property created with cryptographic tools.

Exclusive: It’s Unfortunate Bitcoin Foundation was Drawn into the Blocksize Debate Controversy – Llew Claasen

The Bitcoin Foundation is a group of industry insiders with the stated goals of funding Bitcoin infrastructure and promoting it to the public. This helped the Foundation to make over $350,000 from membership dues last year alone as multiple Bitcoin-related startups and paying members believe they’re helping to improve Bitcoin through the Foundation.

Aside from giving voice to individuals and communities which support Bitcoin as a store of value and Bitcoin-based projects more generally, the Bitcoin Foundation has engaged in numerous campaigns, outreach programs, and events in order to further its mission and values. The Foundation’s website suggests that “someone needs to speak with governments, regulators, financial institutions, technologists, the media and everyone else all over the world to protect bitcoin” and in order to advocate for the safe and legal conversion of fiat currency into bitcoin and vice versa, the use of bitcoin as a medium of exchange, and the use of bitcoin as a store of value.

“The Bitcoin Foundation coordinates the efforts of the members of the Bitcoin community, helping to create awareness of the benefits of Bitcoin, how to use it and its related technology requirements, for technologists, regulators, the media and everyone else globally”, the organization’s web-site reads.

In pursuit of these aims, the Foundation has engaged in political lobbying, the organization of conferences and related events, the administration of research grants, the support of bitcoin protocol development and training programs, and general projects to raise awareness. The Foundation details its project priorities as related to different geographical areas in a strategy document available on the organization website. The organization also sponsors speakers at non-Foundation conferences and events through a project known as the “Bitcoin Speakers Bureau.”

However, since its creation in 2012, the Bitcoin Foundation has attracted waves of criticism from community members over everything from lack of transparency and accountability, controversial appointments to the organization’s board, political split in the block size debates, and doing very little to actually fund the core Bitcoin infrastructure.

In an exclusive interview with ForkLog, Llew Claasen, Bitcoin Foundation’s executive director and a venture capitalist based in Cape Town, South Africa, responded to that criticism explaining the current state of affairs within the organization, its ongoing activities and future plans.

ForkLog: Mr Claasen, as the Foundation’s executive director, what will be your response to all the criticism the organization has received over the past few years?

Llew Claasen: First of all, I think it’s unfortunate that Bitcoin Foundation was drawn into acrimonious split that happened between people who were pro block size increase and people were anti block size increase. The Foundation itself has nothing do with this and ultimately it doesn’t control the protocol, doesn’t make protocol decisions, and doesn’t even advice on protocol. It’s just an advocacy platform for people to tell regulators, lawmakers, the media and average people in the street what this technology is about, why it is useful, why you should know about it and why you should understand more about your right to have money that is not under control of the government and some of the challenges with the current financial system. So I think this remains while we exist.

We are spending a lot of time continuing to engage with regulators, particularly that there’s a much closer regulatory focus. Also, particularly since Bitcoin only has about 30 percent dominance in the market now – that’s not a bad thing, what it means is that there are many more projects, a lot of people that contribute to the projects they feel their contributions are most valued – the Foundation is now representing their interest as well, representing the industry overall rather than only representing Bitcoin.

The reality is that most don’t even know there are other projects; they know there is Bitcoin and other cryptocurrencies. So I think the story doesn’t change. In terms of the challenges that we had in the not too distant past and the splits it was difficult for people from either camp to publicly support the Foundation because they would be trolled to no end by the other side, which is a really bad thing that happens in the industry but that is a reality.

So what happens is that we have switched to a fundraising model where we are reliant on members’ contributions and we’ve got awesome member participation. And the challenge that we do have is that we would love to accelerate some of those programs. We worked on a program at the beginning of this year which is significantly more aggressive in terms of the role that we want to play, and we were working with some big backers to try to get this program funded.

ForkLog: In the recent development of events the Bitcoin Foundation was also tightly involved into Bitlicense opposition movement. Are there any other notable initiatives the organization is taking part in?

Llew Claasen: Now we are focusing on a couple of other things. Number one is New York State and some stuff that is happening there, and specifically the BitLicense challenges, we are also working against some of the regulation proposal by the Uniform Law Commission at the state level, we are participating on working groups in South Africa and Uganda trying to influence what governments are trying to do to cryptocurrency there. We are also engaging with regulators and lawmakers in Zimbabwe and are doing some other things that are ultimately to the benefit of the whole community but we have no profit incentive, we are just trying to do something meaningful.

So that’s kind of where we are. We’d love to raise larger amounts of money for these programs and I think we are making progress, but we would’ve caught up in that mess.

ForkLog: Does Bitcoin Foundation provide any financial support to Bitcoin developers as of today?

Llew Claasen: No, not at this particular time.

ForkLog: What about yourself, being a venture investor how did you come to the crypto industry?

Llew Claasen: I was first exposed to Bitcoin in 2012 but I wasn’t involved very actively in the community until we saw something larger. I think it was around 2016 when things changed dramatically and there was this realization that if we are going to create something that would probably be more useful in failed economies we need to focus on developing markets. So with my background as an investor in technology startups, particularly fintech startups, we were looking at solving challenges in developing markets, it was very relevant to the Board and it was something we were looking at when Bruce Fenton decided to step down as an executive director.

ForkLog: On global level, what areas in crypto and fintech space are the most promising at the moment?

Llew Claasen: I cannot view blockchain technology as I’m sure everybody else does as well as a foundational layer. It’s not a business model in itself; it’s the thing that enables decentralized models. So a combination of blockchain with many other industries is very interesting to me.

Fintech specifically, there’s an example with Dala, the cryptocurrency that was issued in May. The problem that we tried to solve there was price stability since there’s a perception that in many developing markets they either don’t have control over price of their currency or that it is being dictated by more significant trading partners, or there’s abuse and oversupply of these currencies.

ForkLog: In your opinion, how strong will be Bitcoin’s influence in the future?

Llew Claasen: Bitcoin is something that will always play a very dominant role, but I think right now it is probably more useful to think of it as a reserve currency. It is possible some of that will change in the sense that we’ve got Lightning coming onboard and more and more of these technologies being implemented, but the challenge that we have is whether or not Bitcoin becomes of form of cash or remains a reserve currency. It all really revolves economic incentives, like if I have something that performs the function of a reserve currency, a store of value, then why would I spend it? And even if the technology problem is solved I’m not sure the economic problem will be solved. Nevertheless, even in its current form Bitcoin will provide a lot of value to the whole ecosystem.

ForkLog: A few months ago you predicted that by the end of 2018 Bitcoin will hit the $40,000 mark. With today’s overall decline on the markets, do you still stand by that opinion?

Llew Claasen: I don’t make price predictions anymore because they always go out of the context. In that particular case I made a prediction with a whole bunch of anchors “if this happens”, “if that happens”. And unfortunately the reason why it’s no longer responsible to do that is because people will see that as a reason to buy on a speculative basis rather than believe in the fundamental value of the technology and its decentralized nature.

Llew Claasen was interviewed by Andrew Asmakov

St. Petersburg Court Overturns Previous Decision to Block Bitcoin-Related Site

The City Court of St. Petersburg, Russia has overturned the District Court’s previous decision to block crypto media website Bitcoininfo.ru. As reported by TASS Monday, June 4, the decision came about after the court received an order from Russia’s Supreme Court in April to review the case.

“The St. Petersburg City Court overturned the decision of the district court to recognize the information posted on the Bitcoininfo.ru website,” the city court was quoted by the news agency.

The press service of the City Court of St. Petersburg also reported that in July 2016 the St. Petersburg Vyborg District Court banned the website per the application of local prosecutors. The case was considered by the court without the website owners present.

In July 2016, the Vyborg district court of St. Petersburg ruled to block bitcoininfo.ru without allowing the site’s owners go through an initial trial. The basis of the ruling was that cryptocurrencies are “a means of virtual payment and accumulation,” and, thus, providing related information is illegal as it could undermine the country’s fiat currency.

Following the ban, the St. Petersburg City Court also declined the site owners’ appeal to reconsider the case until the Supreme Court overturned the decision.

  • Also read: Roskomsvoboda to Challenge Bitcoin Sites Ban

The website’s owner told the news agency that the St. Petersburg city prosecutor’s statements disclosed that about 100 cryptocurrency media sites had been blocked following the ruling.

Earlier this year the City Court of St. Petersburg annulled a trial court’s previous decision to ban 40 Bitcoin-related websites in the Russian Federation. The ban was initiated because the sites were “spreading information” about digital currency that “is not backed by any real asset and does not provide information about its owners.”

The latest ruling comes as Russia is in the process of drawing up and passing a regulatory framework for the cryptocurrency industry – one expected to be ready by summer of this year, as previously demanded by President Vladimir Putin.