BitOK corrects Russian Central Bank data on the decline in Russian’s cryptocurrency activity
In November 2023, the Central Bank of Russia (CBR) published an informational-analytical report on financial stability for the second and third quarters of the year.
One of the topics addressed by the financial regulator was the involvement of Russian citizens in the cryptocurrency market, relying exclusively on data from a single provider.
The BitOK team values the regulator's efforts, however, we have grounds to believe that the data presented to the CBR might not fully capture the true picture of market events. We'll elaborate on why below.
One of the topics addressed by the financial regulator was the involvement of Russian citizens in the cryptocurrency market, relying exclusively on data from a single provider.
The BitOK team values the regulator's efforts, however, we have grounds to believe that the data presented to the CBR might not fully capture the true picture of market events. We'll elaborate on why below.
Claim 1
According to the statements in the report, the third quarter of 2023 saw a drop in the engagement of Russians on cryptocurrency exchanges. This is linked to a general decrease in global interest in the cryptocurrency market due to tighter monetary policies.
Based on our data, there is no evidence to suggest that Russians' interest in cryptocurrency has significantly decreased.
Firstly, the report notes that the calculation of Bitcoin flows, which formed the basis for the conclusion about investor activity, was conducted using the following sample of trading platforms: Binance, Huobi (HTX), Bybit, OKX, Gate, MEXC, KuCoin, Poloniex, Bittrex, Bitfinex, as well as Bing, Bitmart, Bitrue, Bkex, Btcex, Coinw, Coinbase, Phemex, Probit, Whitebit, Exmo, Garantex.
Furthermore, the selection of platforms does not include CommEx, the exchange to which Binance transferred its client base from Russia. It's noteworthy that Binance announced its withdrawal from Russia on September 27, 2023, just a few days before calculating the Bitcoin investment volume for the report.
We lack precise information on whether the Central Bank of Russia considered Binance's transfer of its Russian clients to CommEx. However, it's plausible that the client base transfer might have been counted as user outflow or not considered at all in the data compilation.
Secondly, the tightening of monetary policies in foreign countries is hardly related to a decline in Russians' interest in cryptocurrencies (if it occurred at all). This can be explained, at the very least, by the fact that Russian investors are isolated from the European and American markets due to sanction-related restrictions.
Thirdly, in the same report from the Central Bank of Russia, it explicitly states that "key factors influencing the activity of Russian crypto investors are events in the global cryptocurrency market," which does not align with earlier claims about the impact of monetary policy tightening on the Russian crypto market.
From the data presented in the report, it can be inferred that the volume of Bitcoin inflow and outflow on cryptocurrency exchanges more often correlated with incidents in the cryptocurrency market rather than with the tightening of monetary policies.
According to the statements in the report, the third quarter of 2023 saw a drop in the engagement of Russians on cryptocurrency exchanges. This is linked to a general decrease in global interest in the cryptocurrency market due to tighter monetary policies.
Based on our data, there is no evidence to suggest that Russians' interest in cryptocurrency has significantly decreased.
Firstly, the report notes that the calculation of Bitcoin flows, which formed the basis for the conclusion about investor activity, was conducted using the following sample of trading platforms: Binance, Huobi (HTX), Bybit, OKX, Gate, MEXC, KuCoin, Poloniex, Bittrex, Bitfinex, as well as Bing, Bitmart, Bitrue, Bkex, Btcex, Coinw, Coinbase, Phemex, Probit, Whitebit, Exmo, Garantex.
Furthermore, the selection of platforms does not include CommEx, the exchange to which Binance transferred its client base from Russia. It's noteworthy that Binance announced its withdrawal from Russia on September 27, 2023, just a few days before calculating the Bitcoin investment volume for the report.
We lack precise information on whether the Central Bank of Russia considered Binance's transfer of its Russian clients to CommEx. However, it's plausible that the client base transfer might have been counted as user outflow or not considered at all in the data compilation.
Secondly, the tightening of monetary policies in foreign countries is hardly related to a decline in Russians' interest in cryptocurrencies (if it occurred at all). This can be explained, at the very least, by the fact that Russian investors are isolated from the European and American markets due to sanction-related restrictions.
Thirdly, in the same report from the Central Bank of Russia, it explicitly states that "key factors influencing the activity of Russian crypto investors are events in the global cryptocurrency market," which does not align with earlier claims about the impact of monetary policy tightening on the Russian crypto market.
From the data presented in the report, it can be inferred that the volume of Bitcoin inflow and outflow on cryptocurrency exchanges more often correlated with incidents in the cryptocurrency market rather than with the tightening of monetary policies.
For instance, among the events showcased, only two occurred outside the cryptocurrency industry and, as claimed, had an impact on the market:
1) Announcement of partial mobilization.
2) "Events on June 23-24." Presumably referring to the Wagner Group rebellion.
Suppose the interest of Russians in cryptocurrencies has indeed dropped. How did the Central Bank of Russia arrive at this conclusion? The regulator indicates that the "data source [...] is the 'Transparent Blockchain' (software developed by Rosfinmonitoring)."
Now, let's explore the methodology used to assess the activity of Russian investors in cryptocurrency.
Now, let's explore the methodology used to assess the activity of Russian investors in cryptocurrency.
Claim 1
«The aggregate volume of Bitcoin inflows and outflows on the largest cryptocurrency exchanges, estimated to be attributed to Russians, decreased by 22.4% in the second and third quarters of 2023 compared to the same period in 2022, totaling about 700,190 bitcoins (1.68 trillion rubles).».
In a footnote to the aforementioned statement, the Central Bank of Russia notes:
"The activity indicator is calculated by multiplying the volume of bitcoins deposited (withdrawn) to designated addresses on cryptocurrency exchanges during a specific period by the share of Russians in the web traffic of cryptocurrency exchange sites."
It's important to highlight that web traffic data alone may not accurately represent the volume of incoming (and outgoing) cryptocurrency on the exchange.
Web traffic provides only general information about site visits, broken down by IP addresses. Moreover, these data do not reveal:
«The aggregate volume of Bitcoin inflows and outflows on the largest cryptocurrency exchanges, estimated to be attributed to Russians, decreased by 22.4% in the second and third quarters of 2023 compared to the same period in 2022, totaling about 700,190 bitcoins (1.68 trillion rubles).».
In a footnote to the aforementioned statement, the Central Bank of Russia notes:
"The activity indicator is calculated by multiplying the volume of bitcoins deposited (withdrawn) to designated addresses on cryptocurrency exchanges during a specific period by the share of Russians in the web traffic of cryptocurrency exchange sites."
It's important to highlight that web traffic data alone may not accurately represent the volume of incoming (and outgoing) cryptocurrency on the exchange.
Web traffic provides only general information about site visits, broken down by IP addresses. Moreover, these data do not reveal:
1) Distinction between authorized and unauthorized users;
2) Details regarding which visits are organic and which might be artificially inflated (while more detailed data can be found on monitoring sites like SimilarWeb, this information is not included in the Central Bank of Russia's report).
It's unclear exactly how and where data were collected for the Central Bank of Russia. The only known detail is that the service from Rosfinmonitoring was the data provider. Whether they relied solely on the SimilarWeb monitoring service or included metrics from other websites' web traffic (such as Alexa) is uncertain.
Assuming the data is accurate, depending solely on web traffic is unlikely to provide a comprehensive view of cryptocurrency activity, especially given the diverse geographical locations of investors.
It's important to highlight that in September 2023, the American company Chainalysis employed a similar approach to produce a report on cryptocurrency adoption. Nevertheless, the company promptly acknowledged that assessing cryptocurrency activity based solely on web traffic is not accurate:
Assuming the data is accurate, depending solely on web traffic is unlikely to provide a comprehensive view of cryptocurrency activity, especially given the diverse geographical locations of investors.
It's important to highlight that in September 2023, the American company Chainalysis employed a similar approach to produce a report on cryptocurrency adoption. Nevertheless, the company promptly acknowledged that assessing cryptocurrency activity based solely on web traffic is not accurate:
Source: chainalysis.com
Regarding Chainalysis, they could take into account web traffic data because, according to their statement, the company consulted with local representatives of the crypto market and factored in purchasing power in various countries during their calculations.
From the Central Bank of Russia's report, it's clear that the exclusive source of information in the cryptocurrency section was only one data provider — ‘Transparent Blockchain’.
We lack information on whether representatives of the ‘Transparent Blockchain’ consulted with the cryptocurrency exchanges in the provided sample or with experts in the Russian cryptocurrency market. The Central Bank of Russia's report also doesn't offer clarity on this matter.
However, there are reasons to believe that independent verification did not occur. This assumption is based on two factors:
From the Central Bank of Russia's report, it's clear that the exclusive source of information in the cryptocurrency section was only one data provider — ‘Transparent Blockchain’.
We lack information on whether representatives of the ‘Transparent Blockchain’ consulted with the cryptocurrency exchanges in the provided sample or with experts in the Russian cryptocurrency market. The Central Bank of Russia's report also doesn't offer clarity on this matter.
However, there are reasons to believe that independent verification did not occur. This assumption is based on two factors:
1) There are no servers of the cryptocurrency exchanges from the sample within the territory of Russia (except for the sanctioned Garantex exchange, but this is uncertain). This means that representatives of the ‘Transparent Blockchain’ likely couldn't personally verify the provided web traffic data on the trading platforms.
2) Cryptocurrency exchanges do not disclose their data even to law enforcement agencies in Russia. In April 2023, the Russian Prosecutor General's Office noted the reluctance of foreign cryptocurrency exchanges to share information. At the same time, the Russian Prosecutor General Igor Krasnov emphasized the need to compel cryptocurrency exchanges to register and provide data to Russian law enforcement agencies. However, in practice, cryptocurrency exchanges did not show readiness for such information exchange, as demonstrated in July 2023 when the Russian Prosecutor General's Office had to seek assistance from other countries to arrest cryptocurrencies.
The number of visits from a specific country doesn't necessarily align with the cryptocurrency volume, whether it's incoming or outgoing. Web traffic doesn't accurately portray user activity on a cryptocurrency exchange due to the anonymity of blockchain transfers. Additionally, arbitrage traders and market makers commonly utilize API connections, which monitoring sites don't capture.
In essence, even if over 50% of visitors to a trading platform are from Russia, the majority of cryptocurrency volume—both incoming and outgoing—might still originate from users in other countries.
This thesis is justified, at the very least, by the fact that purchasing power varies significantly across different countries.
The sample provided by the Central Bank of Russia includes platforms operating internationally and not limited to Russia alone. Thus, even a small group of foreign investors can easily outweigh Russian contributors in terms of monetary volume. However, web traffic would still indicate the exchange's popularity among Russians.
In essence, even if over 50% of visitors to a trading platform are from Russia, the majority of cryptocurrency volume—both incoming and outgoing—might still originate from users in other countries.
This thesis is justified, at the very least, by the fact that purchasing power varies significantly across different countries.
The sample provided by the Central Bank of Russia includes platforms operating internationally and not limited to Russia alone. Thus, even a small group of foreign investors can easily outweigh Russian contributors in terms of monetary volume. However, web traffic would still indicate the exchange's popularity among Russians.
To sum up
Based on the above, it can be inferred that the data provided to the Central Bank of Russia regarding the crypto market may present an incomplete picture.
The BitOK team, along with the cryptocurrency community worldwide, is open to engaging in dialogue with regulators with the aim of improving the accuracy of the data provided on the digital assets industry.
The BitOK team, along with the cryptocurrency community worldwide, is open to engaging in dialogue with regulators with the aim of improving the accuracy of the data provided on the digital assets industry.
