Putin: “Maybe BitIQ are the future, after all.”

This is how Russians know and love their president: Vladimir Vladimirovich Putin swimming in a Siberian lake. Certainly still in winter.

Russian President Vladimir Putin comments on BitIQ – again. His commentary is – once again – surprisingly positive. Meanwhile, a survey of Russian investors shows that cryptocurrencies are now the most popular investment in Russia. Is Russia on its way to becoming the next El Salvador?

During an investment forum in Moscow, President Vladimir Putin himself was asked whether cryptocurrencies are an alternative to fiat money issued by central banks. The Russian head of state’s answer is interesting.

Putin’s perspective tends to be negative: Cryptocurrencies are not backed by anything, colossally volatile and associated with extreme risks, he said. “I think you need to listen to those who talk about the big risks that come with cryptocurrencies.”

So far, so expectable. After that, however, the president also found some surprisingly positive words. “However, cryptocurrencies are being used more and more in some countries and in some economies. Perhaps,” Putin said, “this is the future.” But of course, he said, one must carefully observe how this process develops and, if necessary, intervene in it in a steering manner. “We will react on the basis of the realities that are emerging in our country. We need some elements of regulation, but it should not limit economic activity.”

Why cryptocurrencies would be perfect for Russia

This sounds much better than the legal reality in Russia actually is. This is because the “Law on Digital Financial Products” passed this year not only defined cryptocurrencies, but also banned them from being used as a means of payment for goods and services. In doing so, the Duma did exactly what the president now does not want – it passed a law restricting the economic activities of cryptocurrencies.

The comment at the investment forum was not Putin’s first positive statement on cryptocurrencies. Only in October, in a television interview on the sidelines of the Russian Energy Forum, he said that decentralised digital money could one day be used in oil trading – but that it was still too early for that. At the same time, he criticised the US for weakening the dollar, noting that international settlements in dollars are decreasing while many countries are reducing their dollar reserves.

Putin may have realised the geopolitical opportunities that Bitcoin and other cryptocurrencies offer Russia. The country could become less dependent on the US for money without becoming more dependent on Europe or China if it used euros or yuan instead of dollars.

Thanks to its enormous energy resources and cool temperatures, Russia is an almost perfect mining location. Finally, the technically well-educated population should already be relatively well prepared.

Private investors love crypto

This is illustrated by a recent survey. According to it, it has already paid off for many of the country’s citizens to get involved with cryptocurrencies. The “non-qualified investors”, i.e. the quite normal, more or less wealthy citizens, are clearly more open to cryptocurrencies than their legislators.

In a survey of 1,000 investors, 46 percent think that cryptocurrencies are a good defensive investment. Defensive in this context means something like “value-preserving”. This means that cryptocurrencies are the most popular among “alternative investments” in Russia – even ahead of real estate and gold. According to one expert, trading in cryptocurrencies is so popular that the volume this year was greater than for shares and other financial instruments.

Another expert estimates that Russians hold cryptocurrencies worth $300-500 billion. At current prices, that would be 10-20 per cent of the total market – many times more than Russia’s share of global GDP, which is around 3 per cent. If the estimate is correct, it could be inferred that cryptocurrencies have contributed disproportionately to creating wealth or reducing poverty in Russia over the past two years.

The Central Bank also confirms that Russians are among the most active participants in the digital currency markets. Of course, the central bank added the obligatory note that there are many risks associated with cryptocurrencies and that the money is used by criminals for money laundering.

The reason for the huge interest from citizens of Russia is similar to that in the US and Europe. Demand exploded in the mid-2020s when the US and the EU started to fight the Corona crisis with the money press, which had a kind of contagion effect on the whole world, including Russia. The money supply increased everywhere, interest rates fell, inflation became noticeable, and the classic, passive-simple-safe investment instruments, such as overnight money, savings accounts and government bonds, became so unprofitable that they lost all sense for the sums that “non-qualified investors” usually have at their disposal.

The criminal impact

Blockchain analyst Chainalysis also confirms that Russia is one of the most active markets for cryptocurrencies. In its “Global Crypto Adoption Index”, the country ranks second – right after its hated neighbour Ukraine. However, Chainalysis agrees with the central bank that cryptocurrencies – especially Bitcoin – have a clear criminal cloud in Russia.

The analyst notes a globally unique influence of criminal enterprises in Russia and Eastern Europe. For example, the only world-class Russian crypto company is the darknet market Hydra, which, if trading volumes are estimated correctly, would also be one of the country’s largest internet companies. In addition, ransomware is believed to be a key driver of crypto inflows into Russia.

There have long been rumours that the Russian government tolerates cybercrime, such as ransomware, as long as they find their victims abroad. For this reason, installing a Russian keyboard is also considered by security experts to be a serious protective manoeuvre against ransomware.

However, it is fair to add that criminal transactions make up only a tiny part of Russian Bitcoin activity. Perhaps higher than in other countries, but little disappears compared to legal activity.