Russia has become the world’s second-largest mining powerhouse, and the country’s miners’ profits are estimated by the Ministry of Finance to be around RUB 100 billion a year. The topic was discussed extensively at the recent St. Petersburg Economic Forum: the State Duma is now considering legislative regulation of the industry, which is expected to become operational from 2024, and officials hope to see a multiplication of the industry after that. What makes mining in Russia attractive and takes it to the top of the world rankings? We have gathered the opinions of experts.
Russia’s key advantage – cheap electricity
Russia for the first time came second in terms of mining capacity in Q1, Kommersant reported, citing BitRiver data. The figure amounted to 1 GW, the leader remains the US with 3-4 GW. It is followed by Gulf countries (700 MW), Canada (400 MW) and Malaysia (300 MW). Earlier Russia was in third place, ahead of Kazakhstan. Russia’s move up the ranking was helped by restrictions on mining activities in Kazakhstan last year, and earlier in China due to power shortages.
Despite a number of legislative uncertainties that are only scheduled to be rectified, Russia remains a fairly promising region for miners, commented Nikita Zuborev, senior analyst at BestChange.
“On the plus side, there are relatively low electricity tariffs, even in Central Russia the price level is competitive compared to the rest of the world, but if we talk about regions with low tariffs – Irkutsk and Krasnoyarsk regions, Khakassia and Dagestan – the benefit is noticeably higher. In many other regions, there is also free capacity that can be used for mining on profitable terms,” the expert explained.
Another plus, he says, is relatively loyal taxes on companies’ profits. “Provided that miners continue to pay standard taxes on the principle of data centres, and the initiative of the Ministry of Energy, which is trying to build a counterpart of the excise tax directly into higher electricity tariffs for miners, is not implemented,” the expert warned.
Another minor but still noticeable advantage of Russia is the convenience of logistics: China is the absolute leader in the production of professional equipment for mining, and the direct rail connection with Russia is an advantage in delivery, Zuborev stressed.
Russia is one of the most attractive locations for miners due to several advantages, agrees Green Crypto Processing COO Yvona Gutovich, also highlighting low electricity prices.
Russia is one of the most attractive locations for miners due to several advantages, agrees Green Crypto Processing COO Yvona Gutovich, also highlighting low electricity prices.
“Russia is one of the largest electricity producers in the world, and the price of electricity in Russia is one of the lowest. This means that miners can have access to cheap electricity, which is an important factor when deciding where to place their mining farms. The cold climate allows miners to save on the cost of cooling their mining farms. This can be especially important during the summer months, when temperatures can reach high levels,” she stressed.
According to her, the cryptocurrency mining industry in Russia is just beginning its journey and has great potential for development. “Overall, Russia has all the necessary conditions to become an attractive location for cryptocurrency miners. The above factors may help Russia to become one of the leaders in the cryptocurrency mining industry in the future,” Gutovich is optimistic.
Regulatory uncertainty persists
The risks include continued regulatory uncertainty. The draft law on mining was submitted to the State Duma last autumn, and has not yet passed even its first reading – it has been postponed several times due to interdepartmental discussions. In December, Anatoly Aksakov, head of the Duma Committee on Financial Markets, who periodically comments on the status of the draft, explained that the document could not be passed in 2022 because of one of the discussion participants’ concerns about the use of cryptocurrencies to illegally withdraw money from Russia.
At the recent SPIEF, Aksakov expressed hope that the draft would be ready for first reading within a month and a half. “Then everything will go faster, it is quite possible that in October the second and third readings will take place. Accordingly, next year crypto-mainers and cryptocurrency dealers will already be able to work in the legal space and pay taxes and benefit our economy,” he stressed.
The Ministry of Finance, meanwhile, has “tax views” on the industry. “According to our calculations, about $4 billion worth of cryptocurrencies are mined, and the profit of miners is about 100 billion rubles. On this basis, we can make a calculation, applying a rate of 20%, that under current conditions it could be about 20 billion rubles,” the head of the financial policy department of the Ministry of Finance, Ivan Chebeskov, outlined the prospects at the SPIEF. At the same time, he said, a multiple increase in the industry and, consequently, in taxes is likely, if the “right prerequisites” are created.
Pavel Snikkars, deputy head of the Ministry of Energy, also spoke about the prospects for regulation in a commentary to TASS. “We want miners as a consumer category to be defined. We hope that there will also be taxation for this category of consumers. It is important for us to be able to identify them and we understand that we will have to introduce certain regulatory features for them,” he said. Snikkars added that the Ministry of Energy will provide for certain restrictions so as not to build a large amount of generating capacity for the needs of miners, “for which the entire country will pay”.
In addition to regulatory risks, experts highlighted sanctions risks – in the event that secondary sanctions affect foreign banks and exchanges working with Russian miners.
Officials and experts, however, agree that the adoption of the draft law on mining could give a strong impetus to the development of the industry in Russia, if the right conditions can be created for it. As Dmitry Simonenko, a partner in the Finam Digital Assets fund, noted during Monday’s Finam Mitap, there are no laws prohibiting mining in the Russian Federation right now.
“Bitcoin is not banned here and is an investment instrument, it is possible to import mining machines. All the equipment goes through customs, through the FSB, it gets fully white, legal permits for import and use. There is no prohibitive framework that prevents us from turning the machines on and working. We cannot exchange bitcoins inside Russia, but we can sell them on international exchanges. There is no prohibition, and I hope there will be a coherent law that clearly explains how this can be done, at which point there will be a huge influx of money,” Simonenko expects.
How to make money from mining?
During Finam Mitap, Eugene Mai, founder of cryptonomos.pro, cited Glassnode data showing that miners have earned $51.5 billion over the life of the business, and the cost of mining coins was $37.6 billion. “So that’s an estimated net profit of about $13.9 billion and a profit margin of 37%. I think any business with 37% profitability is quite an interesting topic, even for big investors. I think that there will be enough people in Russia who will continue to invest, especially when there is regulatory transparency and understanding,” May said.
At the same time, he said, “when one goes into mining, one must have at least some initial engineering data, or bring in people who can build it all so that it continues to be profitable.
Meanwhile, there is a simpler and easier way to invest in mining: becoming a shareholder in the Finam Digital Assets ZPIF. This product provides an opportunity to make money legally in the Russian jurisdiction from investments in the crypto-industry. The ZPIF invests in mining equipment and earns income from leasing it, thereby increasing the net asset value (NAV) of the fund and its units. They will be valued twice a year. The estimated potential return on investment in the ZPIF is as high as 60% in foreign currency, with a minimum investment amount of 150,000 roubles in the fund’s mining units.
