Bitcoin‘s (BTC 3.84%) new all-time high of about $109,800 will eventually look like a small hill in comparison to the heights it will likely reach, just the way the once-unthinkable $1,000 price level it surpassed in February 2017 looks today. As if there weren’t enough reasons to be bullish about the coin’s future, there’s now yet another reason pertaining to its regulatory status in one of the world’s major countries.
Here’s what just happened and why it matters.
Shifting cryptocurrency regulations portend broader adoption
On May 15, the Ministry of Finance and the Central Bank of Russia announced that they would launch a pilot of a new cryptocurrency exchange wherein digital assets would be legalized and transactions would be above-board as part of an experimental legal regime designed to test regulation of the industry. The exchange, and legal access to buying, holding, and trading cryptocurrencies, will only be accessible for certain qualified investors and the companies that they are associated with, at least at first. The move comes on the heels of a proposal from the central bank in mid-March that planned for the introduction of the experimental legal regime so as to create a safe environment for developing sensible regulations that would enhance the cryptocurrency industry’s viability in the country.
Furthermore, the government will launch another pilot, which seeks to test the use of cryptocurrencies in settling trade payments. This builds on a more informal scheme that was in operation since at least late last year, in which the country’s companies have been using Bitcoin to pay for commodities like oil to dodge international sanctions. It’s also somewhat in conflict with Russia’s policies regarding citizens using crypto for payments to each other, which is still banned, at least for now.
So how is all of this bullish for Bitcoin?
In short, it suggests that Russia’s disposition toward cryptocurrency, and specifically Bitcoin, is changing rapidly. It’s already getting utility from using the coin to evade sanctions, and now it’s creating testing grounds that could lead to it opening the doors to investments from its capital base relatively soon.
And that will increase demand for Bitcoin, in addition to paving the way for further investment in the country’s Bitcoin mining capacity. Russia is already responsible for about 4.6% of the world’s mining output.
This story is still developing, which leaves room for new catalysts
The more countries that create sensible regulatory regimes to govern cryptocurrency, the more the industry will be able to flourish globally. Investors should take care to recognize that many will prefer to start with regulations that may seem to be overly restrictive before slowly opening up the playing field once certain issues are settled to the satisfaction of those in power.
On that note, Russia will probably not legalize all cryptocurrency transactions and assets tomorrow, or even next year because its central bank is concerned about the prospect of citizens using stablecoins that are backed by fiat currencies it does not control. Still, its careful experimentation with crypto is likely to be a blueprint for developing nations that want to evaluate whether they would gain value by implementing policies like a Bitcoin reserve or legalized trading. This is a global trend that will take years to fully develop, and it’s possible that there will be setbacks along the way.
Russia isn’t the only country actively going through a regulatory revision as it pertains to Bitcoin. Many other nations, including rich and powerful ones like China, are currently calculating whether it makes sense to hold some Bitcoin, or perhaps even buy it or mine it. At least a few of them are going to move forward with their plans, creating more competition for the scarce supply of coins that are mined each day.
And that will help to make Bitcoin’s future price vastly higher than where it is now, to say the least.
