The Russian Federal Security Service (FSB), successor to the KGB, and the Bank of Russia have agreed to ban cryptocurrency payments in Russia, and it remains possible that they will enact even stricter measures. This move came with the backdrop of an increasingly shaky Russian economy, which may explain the decision.

The Bank of Russia is actually pushing for a complete ban of anything cryptocurrency related, making cryptocurrency completely illegal. Despite the agreement, the FSB acknowledges that a total ban of cryptocurrency is not tenable.

Indeed, if cryptocurrency were completely banned in Russia, it would instantly become a lucrative black-market industry. Cryptocurrency is cryptographically secure, immutable, instant, and anonymous, especially privacy coins like Monero (XMR). Even Bitcoin (BTC) transactions can be made completely anonymous if a virtual private network (VPN), Tor, or a mixer is used.

That means cryptocurrency can easily continue to function despite the ban, providing a new business for criminals. And that’s not to mention that regular crypto enthusiasts could end up going to jail.

The FSB’s proposed solution is to authorize specialized operators who will offer exchange services between crypto and fiat and to identify all crypto users.

If this proposal becomes law, anyone who holds crypto, even if they don’t use it, will have to go through an intensive identification procedure and would receive criminal penalties if they do not comply.

In other words, crypto holders and users in Russia would have to give up their anonymity, and if they don’t, they could end up in jail.

This means the future of cryptocurrency in Russia is between a rock and a hard place. Either crypto will be totally banned as the Bank of Russia wants, or it will be legal to hold, mine, and exchange crypto, but not use for payment. As well, users will not have the right to anonymity.

Notably, this law will not pass until spring, so the Russian crypto space will have an uncertain future until then. That being said, the Chairman of the State Duma Committee on the Financial Market is 99% sure this law will be passed, and it is clear this law will at least neuter the functionality of cryptocurrency in Russia, if not totally make it illegal.

Russia banning cryptocurrency is probably not a coincidence. It comes at a time when the Russian economy is not faring well, mostly due to the Coronavirus pandemic. China is Russia’s biggest trading partner, but China has been hard hit by the Coronavirus, with 75,000 cases and 2,000 deaths as of this writing.

In order to prevent the Coronavirus from spreading, Russia has completely closed its border with China, meaning all imports and exports are halted. It is obvious how this can have a significant negative effect on the Russian economy, and it is unclear when the border will be reopened.

Since the middle of January the Russian Ruble (RUB) has weakened 6% relative to the U.S. dollar.

But even before the Coronavirus became an issue the Russian economy was slowing, with 1.3% GDP growth in 2019, versus 2.5% in 2018. The Russian economy is also well below the global average GDP growth of 2.9%. Apparently, this GDP slowdown was caused by Western sanctions imposed after the Russian invasion of Crimea and a drastic drop in oil prices.

So the Russian economy was already weakening in 2019, and the Coronavirus could end up being a deathblow due to drastically declining international trade, declining global equities and investment, and oil prices falling even further.

In light of those things, banning crypto makes sense. Other countries that have banned cryptocurrency in the past have done it to prevent capital outflows.

If cryptocurrency is partially or fully banned it will be difficult for Russians to sell off Russian Rubles (RUB) for crypto or cash out stocks to buy crypto, keeping more money in the Russian ruble (RUB) and the stock market.

But Russia’s plans to restrict crypto will not save the economy. The amount of money that could potentially outflow from stocks and the Russian Ruble (RUB) into cryptocurrency is relatively small compared to the amount of money lost during an economic crash, even if crypto is completely legal.

Rather, the primary effect will be that the Russian black market and the associated cartels and mafias will have a whole new industry to profit from, potentially increasing crime in Russia. This is ironic, considering that Russia’s reason for restricting crypto is to battle money laundering and criminal activity.

Russia would we wiser to regulate cryptocurrency, so the industry remains in the hands of legitimate businesses,and the government can earn tax revenues from cryptocurrency activity.