Russia's Cryptocurrency Ban / El Salvador's Madness

Russia’s central bank has proposed banning the use and mining of cryptocurrencies on Russian territory, stating threats to financial stability, citizens’ wellbeing and its monetary policy sovereignty as the reasons. However, there are reports that it is the security services driving the proposal, to try to stem funding to the country’s opposition and undesirable organisations, including media outlets that have been labelled ‘foreign agents’.

The Russian government has for years been opposed to the widespread use of cryptocurrencies, believing they would be used in money laundering or to finance terrorism. It eventually gave them legal status in 2020, however banned their use as a means of payment.

In a report ‘Cryptocurrencies: trends, risks, measures’ recently, it was stated that cryptocurrencies are volatile and widely used in illegal activities such as fraud. They also offered an outlet for people to take their money out of the national economy, thus risking undermining it and making the regulator's job of maintaining optimal monetary policies harder, the report says. USD5bn is annually transacted in cryptocurrencies in Russia.

When it comes to mining, Russia is the world’s third-largest player, only behind the United States and Kazakhstan, although the latter may see a miner exodus over fears of tightening regulation following unrest earlier this month.

As Russia proposes to ban the use and mining of cryptocurrencies, our thoughts turned to El Salvador, who were the first country in the world to adopt bitcoin as legal tender in September last year a rapturous reception from the lucky beans brigade. It will shock very few people what has happened to El Salvador’s credit default swaps (CDR) since the bitcoin’s legalisation.

At the start of September, the 5-year CDS was trading at just above $430, it had more than doubled to over $1,000 by the end of the month, and only been going one way ever since, currently trading close to $1,900.

Then we have Nayib Bukele’s, El Salvador’s President, USD1bn bitcoin ‘volcano bond’. We will save our thoughts on it for another daily.

Not that any of this bothers Bukele, who boasts that he buys the nations cryptocurrency using his phone, stating his ‘Presidential advice’ was, ‘They can never beat you if you buy the dips’.

What could possibly go wrong??
 
Fixed Income Team