Cryptocurrencies Are Caught In A Tug of War Between Russian Innovation and Modi’s Misery

This week has revealed how Russia and India have decided to take totally opposite approaches to the issue of normalising cryptocurrencies from the perspective of state authority. India’s move to ban the trading and mining of all cryptocurrencies continues to send shockwaves through the markets as Bitcoin plunged to just over $8,000, its lowest rate since 2013. By contrast, in December of 2017, Bitcoin surpassed the key $20,000 mark.

While January of 2018 has seen Bitcoin lose some of its momentum since its barnstorming end to 2017, the decision of the Indian government to begin making cryptocurrency trading illegal in what up until now, had been once of its most expansive markets, has clearly taken its toll. Ironically, this proves that at a time when governments like India fear cryptocurrencies because they are free from state regulation, one statement from a large world-government can dramatically effect the value of a cryptocurrency. Bitcoin suffered further loses when South Korea introduced plans to tax cryptocurrency transactions, thus further demonstrating that governments have a greater influence on the stateless cryptocurrency trade than they often admit.

Unlike India, Russia continues to propose new innovative schemes relating to cryptomining and trading. In addition to rolling out a Crypto-Rouble, Moscow is looking to set up special enterprise zones on either side of the Russian Federation, designed to process offshore transactions in cryptocurrencies. While theoretically, cryptocurrencies are mobile as all transactions are done digitally, the blockchain technology used in cryptocurrency transactions requires a great deal of electricity, making the central location of such trading centres a priority for governments who realise the need to invest in the infrastructural elements of blockchain technology.

The Russian Finance Ministry is currently considering making the Pacific coast city of Vladivostok and Oktyabrsky Island in the Baltic Sea Kaliningrad region, special economic zones for such mega cryptocurrency centres. These strategically placed locations will mean that Russia’s major crypto-trading centres will be easily accessible to both the wider Asian world and wider European world.

Like Venezuela whose cryptocurrency El Petro seeks to attack investment due to being backed by the reliable commodity that is Venezuela’s vast oil reserves, Russia’s Cryptorouble looks to diversify the manifold assets of the Russian state and mobilise them behind a new way for international and domestic investors to create new business opportunities within the Russian economy.

India has taken the opposite approach, one which manifestly fears innovation at a time when Russia and Venezuela are embracing innovation and normalising it within the context of generally sensible state regulatory schemes. In this sense, many international cryptocurrency traders will for the first time, be on the receiving end of the “Modi curse”, just as Indians found their own currency assets under siege from the government during Modi’s ill-fated and deeply unpopular demonetisation scheme of 2016.

As I recently wrote in Eurasia Future, 

“…For India, the question of “normalising” transactions that rely on traditional currencies, has been a matter of concern long before the advent of the blockchain technology used in the cryptocurrency trade. In 2016, Indian Premier Narendra Modi made a shock announcement that we would invalidate the use of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series in an attempt to reduce black market transactions using small banknotes. The demonetisation nearly crashed the Indian economy, wiped out the savings of many Indians who have never used traditional banking systems, created an economic shock-wave across the world among investors who immediately lost confidence in India and to add insult to injury, Modi’s move was made against the better judgement of many top economic advisers.

Even many supporters of Modi’s BJP thought twice about the economic competence of a party whose mass appeal has been generated not around intelligent policy making, but through populist Hindutva sloganeering which includes the frequent scapegoating of India’s minorities, particularly Muslims for the troubles that the country is facing.

For many young enterprising Indians, the cryptocurrency market has become a way to escape the economic uncertainties which were only exacerbated in Modi’s infamous demonetisation move. Now though, by attempting to ban cryptocurrencies, Modi will be repeating a similar mistake to the one he made during the self-made demonetisation crisis.

For those whose Cryptocurrency wallets will be eliminated by the government, there will be a new groundswell of anger, similar to those who found that their cash was rendered worthless over a 24 hour period in 2016. However, a longer term problem will be pushing the cryptocurrency trade further underground, just as the cash crisis of 2016 led many to resort to increasingly heterodox and often dangerous means of transactions, due to the shortage of cash.

India may claim it has the ability to digitally isolate Indians from the blockchain technologies that cryptocurrency miners and traders rely on, however, just as other internet regulatory schemes India has attempted have failed, so too will this also likely fail. The reality is that while both China and India pride themselves on their ability to ‘control’ the internet, China is actually able to do this successfully while India typically fails when it attempts to follow China’s lead”.

Today the markets have spoken, falling victim to the “Modi curse” which always manages to put a “lose-lose” mentality over the “win-win” principles commonly embraced by China and Russia. When the Crypto-Rouble officially launches, the markets may well respond positively, thus demonstrating international confidence in Russia’s embrace of the new currency technology.

Comments are closed.