Recent years have been marked by a steady increase in the number of individual investors in the Russian stock market. But compared with other countries, the community is not that large. Cryptocurrency trade, on the other hand, has become truly popular with the mass Russian user, despite the short history of the market and the legal uncertainty of digital assets. According to recent studies, in terms of the number of users on cryptocurrency trading platforms, Russia is among the world leaders and is second only to the United States. Is it true, and why do Russians prefer digital assets to traditional assets?

On January 31, the Moscow Stock Exchange announced that the number of private investors registered on it reached two million people, as in 2018 alone, over 700,000 new traders entered the exchange market. For the St. Petersburg Stock Exchange, where foreign securities are traded, 2018 also became “one of the best in history,” as Evgeny Serdyukov, the general director of the exchange, said before the New Year. The number of accounts on the venue reached 46,000.

Although the inflow of individual investors in 2018 is called a record one, in terms of the penetration into the stock market, Russia is far from the leading countries such as the United States and Japan. The activity of investors, however, was undermined there as well due to the 2008 financial crisis. In 2016, investors in the stock market made up just over half of U.S. residents, according to a study by Gallup, whereas in 2007, they were 65%. In Japan, about 50 million people were the owners of securities in 2017.

Meanwhile, in December of last year, the Belarusian agency BDCenter released a study of the 30 largest cryptocurrency exchanges, according to which Russia ranked second in the number of registered users. In the first place was the United States, in third was China. At the top of the list were also Vietnam, Turkey, and Ukraine.

BDCenter report “Marketing Analysis of Cryptocurrency Exchanges. August–November 2018.” Source.

Japan is right behind Ukraine. According to the national financial regulator’s data for 2018, there were 3.5 million cryptocurrency traders in the country.

The analytical resource DataLight partly confirms the data from BDCenter. In early February, it published its own statistics of the users of crypto exchanges such as Binance, Coinbase, Bitfinex, Bittrex, and Poloniex. On three of them, Russian traders occupied leading positions with a share in the range of 6–10%, but this indicator is well below the average value of 15% indicated by BDCenter.

Geographical distribution of crypto traders. Source.

Cryptocurrency trade attracts a large number of Russians. One of the main reasons is the problems in the economy and the decline in the value of the ruble in recent years, says Edward Bark, the founder of the EXMO crypto exchange. And this makes Russia related to other “problematic” economies like Turkey, Venezuela, Iran, and Brazil.

“People are very tired of corruption, deception, lack of stability, and collapsing economies. Look at what is happening in Venezuela and Turkey. Bitcoin volatility is lower than that of the national cryptocurrencies. It’s natural that people see a way out in a decentralized system, where only they have the right to their assets and where they are not afraid that all their savings will depreciate in an instant,” he said. “The same thing now can be said about Russia, since distrust of the state and lack of a sense of a stable future, the waiting for the ruble to fall, the strive for self-insurance, high unemployment, and low wages are what encourages people to look for alternative sources of income.”

Bark stated the “actively developed” shadow economy and a climate suitable for mining among other reasons for the popularity of cryptocurrencies. At the national level, cryptocurrencies can be a way to circumvent economic sanctions, he added.

According to the Coinhills website, Bitcoin daily trading volume in pairs with the ruble does not exceed 1,500 coins, or approximately $5 million. According to this indicator, the ruble closes the top ten leading currencies, although it occupies only 0.2% of the market, while the U.S. dollar and the yen account for 92% of all trade. EXMO, which is focused on users from the CIS, leads in terms of trade with the ruble.

A couple of years ago, Russia occupied about 80% of the total number of verified users, as EXMO CEO Sergey Zhdanov said. Now the share of Russian traders has fallen to about 50%. Their number was estimated at 500,000 people by the administration of the exchange. Following Russia in the number of EXMO users is Ukraine.

In August, the rate of the Turkish lira fell sharply after the introduction of new economic sanctions by the United States. After that, there was a significant influx of users from Turkey on EXMO, after which it was decided to localize the service for this country and introduce trade pairs with the Turkish local currency. At the end of November, Binance stopped working in Belarus, and the number of Belarusian users on EXMO significantly increased. A significant proportion of platform traders are also residents of Kazakhstan.

Gleb Kostarev, the representative of Binance in Russia, confirmed that the country is in the top five list by the number of users registered on the exchange. According to Kostarev, now there is a “process of global players entering the Russian market.”

In November of last year, another branch of another leading crypto exchange, Huobi, officially opened in Russia. The site was translated into Russian, and a Russian-language support service appeared. Commenting on the launch of the Russian office, Edward Chen, the head of Huobi Global, said that Russia was “one of the most important markets” for the platform.

“Indeed, there are a huge number of traders in Russia,” said Andrei Grachev, head of the Huobi Russian representative office. According to him, Vietnam should be put in the first place in the ranking of countries in terms of the number of traders on the platform, and Russia should be placed in the next position. Behind them are China, Korea, and Indonesia. At the same time, according to Grachev, the United States should be completely excluded from the list, since American citizens cannot register on exchanges that are not licensed in the United States. “We own a platform with a license, but it is intended exclusively for users from the United States,” he stressed.

Maxim Keidun, the head of the P2P exchange Hodl Hodl, agrees with Grachev. Most of the Hodl Hodl site visitors are from the USA, but they simply cannot be verified on the exchange. But the largest number of offers to buy assets is placed by Russian traders, whose share exceeds 10%. Russia is followed by the United Kingdom (4%) and Germany (3%). Keidun noted that it is the order statistics that correctly reflects the activity of users from a particular country on the exchange.

Distribution of countries by orders placed by users. Source.

New regional players will find it “difficult to compete with the largest sites in the fight for the Russian market,” Kostarev believes. At the same time, the immersion of international players in the Russian market remains shallow, says Sergey Zhdanov: “The entry of Huobi into the Russian market is, in fact, only the registration of a legal entity. They will never, at least in the next few years, in their own words, have the Russian ruble on the platform, they will have no payment systems, and so on, because cryptocurrencies in Russia are now outside the legal field.”

All the interlocutors agreed that the lack of legislative regulation of cryptocurrencies is the key reason why in the post-Soviet space there is still no dominant exchange comparable in scale to the leaders of the cryptocurrency trade market. Kostarev admitted that if the “relevant” laws were adopted, Binance could launch a crypto-to-fiat platform in Russia.

The emergence of a large trading platform in Russia is possible in partnership with a certain global player that will ensure the availability of liquidity at the start, says Andrei Grachev. Also, this platform should strive for worldwide expansion and have a legal basis. In addition, clear “rules of the game” on the part of officials and support of banks are necessary, as Keidun added. In the meantime, both EXMO and Hodl Hodl are registered outside of Russia, although they have Russian teams and are focused on the Russian market.

There is another reason for distrust. “No matter how surprising it may sound, Russians are extremely distrustful of Russian exchanges and projects. I will not judge the reasons why, but that is a fact,” said Grachev. A possible response to such an attitude could be the shutdown of the famous BTC-e/WEX crypto exchange, which froze users’ funds worth hundreds of millions of dollars. It was not regulated by law, did not bear any responsibility, but was extremely popular. “Our people are accustomed to the fact that the state cannot be trusted, they are used to working semi-legally and are not used to sharing their personal data,” says Hodl Hodl’s CEO.

According to him, the collapse of the BTC-e was “a matter of time,” since the work of the service was completely opaque. “If the state promotes clear and transparent work, you will have transparent and understandable projects. Otherwise, we get what happened,” concluded Maxim Keidun.