Russia Makes U-Turn on Cryptocurrencies After Backing From Putin

(Bloomberg) -- 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 this month, the government in Moscow plans to regulate cryptocurrencies like securities rather than outlawing them, Finance Minister Anton Siluanov told reporters on Friday. 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.

By contrast, China’s central bank has ordered all fundraising efforts related to ICOs -- which have raised at least $1.25 billion globally so far -- halted immediately, a decision that may have an impact on investors who had participated in at least 65 of the projects by mid-July. Chinese regulators have also decided to close domestic trading cryptocurrency platforms, Caixin reported, citing unidentified people close to the nation’s Internet financial risk prevention team.

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

Putin’s Embrace

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 $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 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.

To contact the reporters on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net, Anna Andrianova in Moscow at aandrianova@bloomberg.net, Andrey Biryukov in Moscow at abiryukov5@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Paul Abelsky, Michael Winfrey