Russia might undo its mining ban decision, but Fitch Ratings point at other concerns

Soon after the central bank of Russia announced that it is mulling a ban on crypto mining, reports now point otherwise.

The Chairman of the State Duma Committee on Industry and Trade, Vladimir Gutenev told the local news wire that crypto mining can continue legally in the country under the regulatory control of the state.

No ban in Russia!

Along with that, the high-ranking official also brought about the idea of a gold-denominated stablecoin that will be under the control of the Russian government. While agreeing to potential risks of private cryptos, he called the stablecoin a financial instrument for both retail and institutional investors, adding,

“That is, it would be an analogue of the gold ruble, which, if necessary, would not leave any traces in the conditions of serious and unmotivated sanctions, as well as a policy of deterrence not only in the field of military-technical cooperation but also in the usual absolutely transparent and non-politicized economic relations”. (sic)

With that, the idea of a “golden ruble” is something that the official has already taken to CBR governor Elvira Nabiullina, reported RIA Novosti.

We know that Russia has been keeping a hard stance when it comes to cryptocurrencies. In a recently released consultation paper, Moscow had outlined risks like high volatility and proliferation of fraud in the cryptocurrency sector. Therefore, on the back of potential financial stability risks and also environmental concerns, Russia had commented that a blanket ban on mining “could be the best solution.”

However, local reports suggest that majority of state authorities are not on-board with the central bank’s blanket ban.

The head of the State Duma Committee on the Financial Market, Anatoly Aksakov argued that the report of the Central Bank will need further discussions and no crypto activity has been banned yet.

Worrying signs

But akin to some of these existing concerns, Fitch Ratings has also pointed out the challenges that the high energy consumption of crypto mining poses. Apart from increasing pressure on power grids, the rating agency said in the report,

“Digital asset or cryptocurrency mining in the US could pose power supply risks to public power utilities unless they are sufficiently mitigated,”

Further pointing at the “volatile and unregulated nature of crypto mining,” Fitch notes that several Washington utilities had to adopt new practices from 2014 due to new load requests.

But, the demand is quickly changing which can also pose a concern. We know that the mining sector saw a drastic change in 2021, post the China policy ban. Russia became the third-largest mining destination while the US took the top spot.  But, domestically as well, this might change quickly as Fitch noted,

“Crypto mining operations are price-sensitive entities that may be quickly scaled back or shut down if mining becomes uneconomical.”

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