Russia’s Crypto-Ruble Just Changed the Game

Tyler Durden's picture

Submitted by Tom Luongo

For weeks now we’ve been getting very mixed signals out of the Russian Government about cryptocurrencies.  On the one hand we see it embracing the new technology while at the same time going on the warpath against them. Because of that there is a lot of confusion in people’s minds as to what the endgame for cryptos in Russia looks like.  I’ll try to clear this confusion up given what we know.

But, suffice it to say, this is very good news for both Bitcoin and the Russian economy.  Give me a few minutes and I’ll explain why.

Putin’s Law

Vladimir Putin is very much a law and order kinda guy. If you watch Putin operate in the public arena he always does so with an eye towards the law.  He believes strongly in the law.  And cryptocurrencies, despite their obvious benefits to a Russian economy that needs the type of disintermediation cryptos offer, operate in a legal gray area that makes Putin uncomfortable.

So, the goal with Russian official crypto-policy is to stamp out the illegal activities – the money laundering, terrorism-financing, human-trafficking, etc. – while simultaneously using the technology to modernize Russia’s internal capital handling capabilities.

This is what the crypto-ruble is all about.  It is a way for Russia and Russians to provide a gateway between the crypto-world and the so-called real one.  It ensures that this new form of ruble properly tracks capital flow through the Russian economy.

By taxing crypto-rubles at the capital gains rate for those that cannot provide a paper-trail of ownership, Russia and Putin are incentivizing the development of low-cost crypto-payment systems to exchange rubles for goods only in cryptocurrencies that also track ownership, like Ethereum and others that have transparent blockchain histories.

The Russian Capital Invitation

Putin is openly inviting investment capital into Russia that is legal and above board.  Russia wants legitimate businesses to operate in Russia in whatever currency they like as long as that business is transparent.

The crypto-ruble provides the means by which to convert, transaction-cost-free, back into the national ‘fiat’ currency to pay bills, taxes and the like.  This is in direct opposition to how the U.S., for example, treats cryptocurrencies.

The 2014 I.R.S. rule that classified Bitcoin as ‘property’ means that every Bitcoin transaction, no matter how minor, creates a potential capital gains event.  It means that buying a cup of coffee at Starbucks in Bitcoin is taxable for both the person buying the coffee (capital gains on the sale) and Starbucks when they go to sell those Bitcoins, buy dollars and pay salaries, order supplies, etc.

It’s why the capital that has moved into cryptocurrencies isn’t moving back out.  It’s why the ICO market has exploded.  Billions in profits actively looking for new investment opportunities without paying taxes.

It’s also the main reason why Amazon, for example, doesn’t take Bitcoin.  Who wants that hassle?

Can you imagine Amazon’s Schedule D if it accepted Bitcoin?

The crypto-ruble’s structure dispenses with that for those that can prove ownership via the blockchain.  Bitcoin allows for transaction transparency, so does Ethereum, Litecoin and many others.

Now, cryptos can exist side-by-side with rubles without worrying about the threat of double taxation, unless you earned your money in the murk, at which point Russia wants 13% capital gains.  This new system won’t bring that capital back into the Russian economy, but it wasn’t coming back anyway.

Russia Embraces its Own Cryptos

By calling Bitcoin as a Ponzi scheme and an avenue for money laundering Putin and the Bank of Russia are simply attacking technologies that are not home-grown.  They are, like every other person in the markets, ‘talking their book.’

Putin would prefer people use platforms that are Russian.  Remember, he’s also a nationalist trying to bring Russia prestige in this important market going forward.

Ethereum and WAVES are both platforms designed by and built for Russia. So, you’ll notice that Putin has never spoken out against Ethereum.  WAVES continues to fly under a lot of people’s radar, but it is just as disruptive as Ethereum.

They both provide a platform to act as Infrastructure as a Service (IaaS) for the next generation of internet-based applications.  Ethereum is a kind of operating system for Internet 3.0 while WAVES is next generation forex exchange as well as providing an easy platform for issuing new public/private equity.

WAVES is what will back the Moscow Exchange’s move to trade cryptocurrencies and their derivatives.  It will act at the gateway for all of the currency exchanges.  So, if you have dollars, Bitcoins, rubles or Ethereum you can buy and sell stocks on the Moscow Exchange eventually.

All nice and legal.  All above-board.

Evil Putin is looking for pension-fund investors seeing Russian bonds trading above 7% and he just gave fund managers a way to come in through the crypto-back door.

Don’t think for a second that Putin doesn’t like Bitcoin as a means to attract investor capital.  This is what Russian Miner Coin is all about.  He just wants it to be regulated so it can ensure the public sphere is maximized.

The Fight for Capital in Flight

Capital will always flow to where it is treated best.

Given the tenuous situation in the global financial and p0litical systems, Russia’s stable government is an asset. What investors need is the confidence of being able to get their money out after putting it back in.

The scheme for the crypto-ruble is part of that confidence-building process.

I know now, as an American investor, I can, for example, invest in a Russian company’s stock or bond offering directly.  I can get paid my dividends or coupons in crypto-rubles, immediately exchange them for bitcoins or whatever currency I want to use as I see fit.

Oh, and if I never convert them back to dollars, I can put off paying taxes until I do.

That’s not really possible now, especially with sanctions.  If it is possible, it’s expensive and a major hassle.  Putin is a smart man with an excellent team around him.  Moves like this are made in response to aggressive moves made by the U.S. to starve his country of capital, i.e. John McCain’s sanctions.

He and his team understand that providing a platform by which capital can enter Russia that is barred through normal means now is key to surviving the next couple of years.  It’s not his responsibility to monitor what U.S. investors do, only that they comply with Russian law.

First-mover advantage is important here.  If Russia continues to develop blockchain technology and embrace it in a relatively tax-free way, it won’t matter that it is ‘regulating’ the beautiful decentralized market of cryptos.

What will matter is that Russia treats its crypto-investors better than everyone else.  In the fight for global capital flows, you don’t have to be perfect, you just have to be slightly better than everyone else.  Arbitrage will take care of the rest.

And tax-free ruble/crypto exchange is the killer app that the crypto-market has been looking for to take it to the next level.

Russia got there first.

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Two-bits's picture

Petro-crypto-ruble

El Oregonian's picture

Did somebody just say extinct?

Once it is tied up in a shiny red bow. Then the trap is to be sprung...

GlassHouse101's picture

Anyone that thinks the Central Bank crypto's will share a free competition with BTC, ETH, and others is fooling themselves. 

IH8OBAMA's picture

"...Putin operate in the public arena he always does so with an eye towards the law."

Only when it suits him, you dumb cluck.

 

King of Ruperts Land's picture

The "Evil Putin myth" is a .. well , a myth, as far as I can see. I judge people by what I see of them, not what others, especially serial liars have to say.

Volkodav's picture

       You know nothing about this subject.

       VV Putin was never about money

MEFOBILLS's picture

VV Putin was never about money

 

The Stolypin group (with Glazyev calling the shots) now has the upper hand.  This group is seriously advanced when it comes to money.  The former Western ZOG Atlantacists have been downgraded and nobody listens to their neo-liberal nostrums.  Zion/atlantacisism is losing ground and influence in Russia, which is one reason why it is so paranoid about everything Russia does.


tmosley's picture

Sorry, kiddo, but the free market is back, and your PMs ain't a part of it.

Ghost of Porky's picture

Just saw a TV ad for crypto. Celebrity endorsement: Ron Paul.

tmosley's picture

Ron's single best attribute is his love of competing currencies.

EnglishMajor's picture

Actually, it's that he talks sense.

ThanksChump's picture

But Ron didn't tell me where I can buy CryptoRubles. Dammit, Ron. Where do I send my dollars? Screw BTC. It will lose out to a large state-blessed CC, like Russia's or China's. No, BTC will never go away, but it will lose a lot of ground once a big player jumps onboard the blockchain bandwagon.

 

Basket of paper, PMs, manufactured goods, and thumbdrive blockchain wallets for me, yippers.

HRClinton's picture

Key sentence in article, for all the crypto-haters and trolls:

"It’s why the capital that has moved into cryptocurrencies isn’t moving back out."

"It’s why the capital that has moved into cryptocurrencies isn’t moving back out."

"It’s why the capital that has moved into cryptocurrencies isn’t moving back out."

Let that sink in. It's NOT MOVING OUT (of crypto).

That is precisley what I've been saying here for weeks, when I told you that I bought my BTC 5 years ago.  In cash, from a Chinese BTC miner.  Haven't used any of it, because... My PARADIGM was/is: I'm not just buying a speculative Asset. I'm buying into a whole ECOSYSTEM OF A NEW MONETARY SYSTEM : A self-evolving, decentralized and global Monetary System. A Decentralized Ledger.

The very opposite of what Club Fed and its crony CBs have to offer.  It is so different from anything you used to "analyze" traditional "Assets", that traditional tricks of "shorting" don't work.  You can't "short" it, any more than you could have "shorted" the FRNs in 1913.  Your Flat Earth models no longer apply.  Best get the spherical world (technically an 'oblate spheroid') drilled into that thick crypto-hating skull.

 

HRClinton's picture

I'd say that the author went Luongo on Russian Crypto.

Don't Shorto me, bro!

 

autofakt's picture

God bless Russia.

Quantum Bunk's picture

Im the biggest Russophile Putin fan out there. But I dunno about this Crypto Rube thing

Russia is embracing the crypto world and encouraging ppl to enter it. Thats what we should be talking bout

researchfix's picture

Well, he has the most square miles, oil, gas, PMs and personal credibility to back it up.

screw face's picture

@fix bingo!...most important is they got the Algos!

ThanksChump's picture

People are losing faith in government fiat. Putin can either embrace CC and be a leader, or he can outlaw it and be a loser. There are no other choices there.

Winston Churchill's picture

Rumor has it that the ruble, not the yuan,will be the next gold backed currency and the Russians already

have 40000 tons plus of gold to back it with.Combined with the blockchain,to avoid the long history contefeiting an enemies

currency to bankrupt them,it would seem a logical move.

Its not like we could threaten them with sanctions.That card has already been played.

Volkodav's picture

       threaten Russia how is that result?

       Russians can be very clever

       and not scared of much

PN7's picture

I remember reading Rickards saying the USA leads the world with 8,000 tons of gold.  He said China admits to 3,000 tons of gold but they're probably lying.  I think he said Russia has 1,000 or 2,000 tons of gold.  I think your estimate of 40,000 tons of gold may need tweaking.

Flakmeister's picture

This should bring the russian trolls and bots out for a Putin fellatio festival...

Big Corked Boots's picture

It brought you out.

But then, turds float.

Herd Redirection Committee's picture

Take it easy on ole JHK.  He means well.  Mostly.

AgAuSkeptic's picture

This is what precious metals skeptics like myself and MaxKeiser were whining about 5 years ago, if you'll folks had listened and bought BTC, you'd be rich now. It's not that precious metals are undervalued but the fact that govt can set the price of precious metals to any number they want. They can't do that to BTC, different thing will happen with Crypto ruble, real ruble will crash and crypto will skyrocket and government will intervene to set the price because they CAN produce crypto rubles The next investment I'm  seeing is drug companies like Genentech that can price drugs like Tenecteplase to whatever they want and the gubmint will pay, https://www.rxrankings.com/datatable/default/chart/zzzIAR#

Scroll to bottom to see price.

malek's picture

"and bought BTC, you'd be rich now"

Rich in what?
In BTC which you will hold 'til death, as there is nothing better to preserve value?
Or rich in fiatso USDs, after you realized your BTC gains?
Or rich in PMs which you bought from your BTC gains??

LawsofPhysics's picture

LOL!!! How are things at JPM?

Last time I checked, I still purchased bitcoin using central bank fiat currency...

One thing is for sure.  Central bankers have been interested in a crypto currency since the 80's and they have had (and still have thanks to ZIRP/NIRP) access to all the central bank fiat currency they want!

again,

"Full Faith and Credit"

same as it ever was.  been a fun hedge, but not without risk (like all hedges).  Rich? In terms of what exactly?

cheech_wizard's picture

> if you'll folks had listened and bought BTC, you'd be rich now.

I see your still posting here though... (which means you're not rich, and in most cases, someone who bought and is currently a bagholder.)

I say this because if I were to suddenly become rich or had bought "bitcoin" 5 years ago, why the fuck would I bother to post to ZH about it? Why would I even bother getting on-line? 

I'd be on a beach drinking pina coladas. Giving people like yourself a wide berth and the middle finger until my liver gave out. Without a care in the fucking world...



Herd Redirection Committee's picture

As recently as 2 years ago I couldn't even find a Bitcoin price chart that showed anything beyond the last 24 hours.  So I said "Maybe later".  When BTC had its 'civil war' uncertainty earlier this year, I expected a significant retrace, which would serve as a buying opportunity.  Instead it only retraced maybe 33-50% of what I expected, which given that there was major uncertainty came as a surprise to me, or an indication that 'someone' was acting to put a price floor under Bitcoin.

jthepapershredder's picture

Which is probably why we never hear from fonestar anymore

who would want to take more abuse when your predictions were right all along?

right now, tmosley is taking the same abuse from those that are ignorant of the future to come... and chances are that he maybe right with his predictions

M1 will need to be covered and bitcoin is best positioned to do this, not gold.

Every monetary system experiences the rise of the new global reserve currency in the dying years of their imperialism.

The only currency that has emerged to do that is BTC

where will you be positioned when the change is made official?

I'm gonna be on that beach....

overqualified's picture

max keiser has been pimping silver all the way down from peak to bottom. thereafter he pimped his own shitcoin too.

Son of Captain Nemo's picture

I'll buy that for a "Ruble"!... But not in "Buttcoin"!!!

Son of Captain Nemo's picture

P.S.

This is the best news and move that crypto currency could have towards regulation. Including a network that will support it to make it sound!

If Russia spearheads this one they will be in the "driver seat" and will hopefully organize an IETF for cryptocurrency standards that will be all inclusive with genuine rules for encryption that "Satoshi" and NSA DON'T GOT!!!

That is if Russia's smart and writes/"rights" the next "weights and measures" for crypto that will benefit everyone globally as truly sound money!

shizzledizzle's picture

"Vladimir Putin is very much a law and order kinda guy." LOL, sure... He's as corrupt as any. Don't confuse what I am saying... I don't think he is an enemy or what the media make him out to be but don't paint the man like Barney Fife. 

Son of Captain Nemo's picture

"Vladimir Putin is very much a law and order kinda guy." LOL, sure... He's as corrupt as any. Don't confuse what I am saying..."

More on the side of the rule of law than anything in the West!

This is another move that just might see the Russian CB cleanse itself of the Elvira Nabiullina(s) "once and for all"!

Confundido's picture

Like with every other good supplied by the government, a crypto ruble will be of inferior quality and higher price than that provided by the market. 

GlassHouse101's picture

When has the government ever allowed a free market to exist, when they have interests (central bank cryptos) that can monopolize the world?

LawsofPhysics's picture

LOL!!  fiat is fiat is fiat!!!

The question is, is our fiat currency better than their fiat currency (paper or digital)?

Place your bets!

 

"Full Faith and Credit"

HRClinton's picture

The libertarian Free Market will choose the winners and losers.

If it's of Utility, Value and the Market Rules are fair and transparent for all, then...

We will have... Price Discovery!  (Gasp!)  And a natural creation{1} with a future. When was the last time we had that?

(queue video of Fed and bankster heads exploding)

 

{1} Could it be that cryptos are Globally Networked, Digital TALLYSTICKS of centuries past?  Something to ponder.  Hmmm...

LawsofPhysics's picture

doesn't change a damn thing as power corrupts and absolute power corrupts absolutely...

paper/digital, whatever, meet the new boss, same as the old boss, unless you physically killed the fuckers off (and their bloodlines).

Nothing new under the sun....

"Full Faith and Credit"

Manipuflation's picture

How do I buy some Russian Crypto?

123Yy6pk716dMtS12h72JqFsh1RfHAQFGt

 

I think you ZH'ers get it.  13% exchange TAX.  Do I get another Russian woman who knows the tax game too?  YES, she is my mother-in-law.  She is not broke.  It is getting complicated.     

Gorgeous's picture

He uses the term crypto rather loosely.  ruble, crypto ruble, ruble, tax free interchange.  its just rubles.  but the blockchain allows for capital flows that bypases the $, SWIFT, sanctions, etc.  Smart move.  Saw it coming.  but different value prop than BTC.

JonNadler's picture

According to the official, the state issued cryptocurrency cannot be mined and will be issued and controlled and maintained only by the authorities. The CryptoRubles can be exchanged for regular Rubles at any time, though if the holder is unable to explain where the CryptoRubles came from, a 13 percent tax will be levied. The same tax will be applied to any earned difference between the price of the purchase of the token and the price of the sale. Nikiforov said:

“I confidently declare that we run CryptoRuble for one simple reason: if we do not, then after 2 months our neighbors in the EurAsEC will.”

Embracing and rejecting

While the announcement means that Russia will enter the cryptocurrency world, it is in no way an affirmation or legalization of Bitcoin or any other decentralized cryptocurrency. On the contrary, Putin quite recently called for a complete ban on all cryptocurrencies within Russia.

The statement from Putin seemed apparently to contradict the earlier comments from other ministers who seemed pro-crypto, but only with regulations, as well as Putin’s recent meetings with Buterin and others. Now, with the issuance of the CryptoRuble, the apparent contradiction has been made clear.

Txpl9421's picture

First to the market is always a good place to be.

Good for Russia.

As soon as most Americans realize they are not the commies anymore, the better off we will be.