Russia moves to relax crypto mining bans on tax revenue concerns

The executive power in Russia has suspended the expansion of a crypto mining ban that would have added several more regions to what’s already a long list of territories where the activity has been severely restricted.

On Thursday, the government in Moscow scrapped or postponed measures to curb electricity consumption by Bitcoin miners in places from the Finnish border to beyond Lake Baikal, pointing to an expected decrease in tax and energy revenues as the main reason for the U-turn.

Russian authorities take a step back on crypto mining ban

Russia’s central government has decided to refrain from introducing restrictions on cryptocurrency mining to more regions, pausing the planned expansion of a ban that has already affected about a dozen subjects of the Federation.

The change in course was adopted at a meeting of the government commission on the development of the electric power industry, chaired by Deputy Prime Minister Alexander Novak and announced in a post in the cabinet’s Telegram channel on June 5.

According to the press release, participants reviewed requests from authorities in several Russian regions seeking authorization to stop mining operations that have been often blamed by local officials for electricity shortages and blackouts.

Meeting of the commission on the development of the electric power industry. Source: Russian government

The commission declined to ban the activities of crypto miners in the Republic of Khakassia, citing the lack of adequate projections about the deficit of electricity and generation capacity in the region. It also highlighted decreasing tax revenues and profits from distribution.

Proposals to curb mining submitted by the heads of the regional governments in the Russian Republic of Karelia, bordering Finland in the northwest, and Penza Oblast, around 600 km southeast of Moscow, were withdrawn during the meeting.

Furthermore, the feds decided to postpone for two months the consideration of requests for year-round bans on coin minting in Zabaykalsky Krai, a region in Russia’s Far East also known as Transbaikal, and the neighboring Republic of Buryatia.

The Russian government said it’s “taking into account the need to assess lost income in the electric grid complex” and to elaborate a mechanism for redistributing the power freed by the miners “in favor of socially significant consumers in energy-deficient regions.”

Russia seeks to relocate miners to energy-rich parts of the country

Despite its reluctance to allow the free circulation of Bitcoin and the like in its economy, the Russian Federation has been somewhat lenient in its attitude towards cryptocurrencies lately. For example, at the end of May, the Bank of Russia authorized investments in crypto derivatives.

Mining became the first major crypto-related activity to be granted full regulatory recognition after it was legalized last year. Miners can now legally mint digital coins as long as they register with the Federal Tax Service (FNS) and pay taxes.

But the constant expansion of crypto mining operations, both in industrial-scale Bitcoin farms and in private basements and garages, has caused headaches for authorities in some corners of the country such as Irkutsk Oblast, which attracts miners with low electricity rates.

The Russian government is now considering how to entice mining firms to move to regions with surplus energy and idling infrastructure, including by offering them fuel it’s unable to sell to Europe due to Western sanctions over the war in Ukraine.

During its meeting, the power industry commission recommended:

“The Ministry of Energy and the Federal Antimonopoly Service, together with energy companies, must also work out economic incentives for attracting mining loads to regions with surplus in terms of electricity and capacity.”

Nearly a dozen Russian regions have been placed under a permanent mining ban until mid-March 2031 after some of them initially introduced only seasonal restrictions during periods of peak electricity consumption in cold winter months.

The affected areas include southern Irkutsk, the Russian republics of Dagestan, Ingushetia, Kabardino-Balkaria, Karachay-Cherkessia, North Ossetia, and Chechnya as well as the occupied parts of the Ukrainian oblasts of Donetsk, Luhansk, Zaporizhzhia, and Kherson.