More warnings against the Bitcoin in Russia and Cyprus

warnings against the Bitcoin in Russia and Cyprus

On 27th January 2014 the Russian Central Bank had issued a warning against Bitcoin, saying that its trading is highly speculative and also that Bitcoin had a very big risk of losing its value. It also warned that, even unintentionally, through the use of Bitcoins and other such cyber-currencies, “citizens and legal entities risk being drawn into illegal activity, including laundering of money obtained through crime, as well as financing terrorism.”

Echoing these concerns, the Russian Prosecutor General’s Office issued a warning on 6th February 2014 stipulating that treating Bitcoin as a parallel currency is illegal.

More specifically, the warning states that :”Systems for anonymous payments and cyber currencies that have gained considerable circulation - including the most well-known, Bitcoin - are money substitutes and cannot be used by individuals or legal entities”. Moreover, it adds that according to the Russian law, the rouble is the sole official currency and thus introducing any other monetary units or substitutes is illegal.

Finally, the Russian Prosecutor’s General Office stated that it is working with the central bank and other law enforcement agencies in Russia in order to tighten regulations and prevent legal offences from being committed with the use of pseudo-currencies.

In a similar mode, on 7th February 2014, the Central Bank of Cyprus issued a statement entitled “Attention to the risks associated with virtual currencies”, through which it wishes to inform the public about the “risks associated with the purchase, holding or trading of virtual currencies (such as Bitcoin), which is not a legal tender.”

The Central Bank of Cyprus (CBC) clearly states in its announcement that unless legal compliance is ensured beforehand, the CBC does not authorize any activity falling within its mandate and it clarifies that in this sense, any activity which does not have the required license is liable for breaching the law.

The CBC further specifies that if a platform that exchanges or holds a virtual currency collapses, then those members of the public that are using it will lose their money, since no specific regulatory measures exist currently that cover the losses from the use of virtual currencies.

Urging the public to look into all the risks associated with the use of virtual currencies, the CBC identifies some of those risks, as follows:

-      “There is no guarantee or legal obligation to reimburse at face value virtual currency owners, nor to reimburse them at any time.

-      The price of virtual currencies is subject to high volatility. It may rise sharply or even fall to zero value.

-      Acceptance of virtual currencies by merchants is based on their discretion and may cease to exist at any point and with no prior notice, in other words, any merchant may refuse to accept it for payments.

-      Transactions in virtual currencies are more liable to be misused for illegal activities.”

Here at we do not believe that these two announcements by the Russian and Cypriot authorities are chance events or mere coincidences. Indeed, we feel that the timing of these announcements does have a very plausible explanation. We were also not surprised to hear that on Friday 7th February, on a day that saw significant political developments in Cyprus with regards to the country’s political problem and also in its internal developments, such as the third quarterly review of the MoU implementation procedure by the country’s international lenders, aka the Troika, the CBC announcement on the Bitcoin still managed to make headline news and featured highly in the state channel’s 8 o’clock news line-up. If you are interested in finding out what is the reason behind all this, then make sure you read the next article by our new collaborator Mike Hadjisavva, which will follow shortly.