A man with a bag of rubles or dollars arrives at the office or apartment. Nobody asks him who he is and where he got so much cash from, does not ask for any documents. While the guest is drinking coffee and listening to music, the cash is counted. After that, bitcoins (or other virtual currency) are transferred to his electronic wallet at the agreed rate. As soon as the top-up is reflected in the client’s account, it leaves. This is what a typical transaction looks like for buying large batches of bitcoins for cash. The scene resembles the 1990s, but it is repeated dozens of times a day throughout Moscow.
Bitcoin emerged in 2009, and the blockchain technology that underpins this and other cryptocurrencies is even older. But the cryptocurrency experienced a real boom in 2017 – over the past year, bitcoin grew in price 20 times and in December reached $ 20,000. Investors believed in the prospects of virtual money: if in 2016 they invested in startups for the release of new “coins” and virtual currencies themselves are $ 1.3 billion, then in 2017 – already $ 9.5 billion, and in the first half of 2018 – $ 14 billion (data from Autonomous Research LLP).
Cryptocurrencies have begun to be recognized by states – somewhere they are already considered a means of payment, somewhere property. This led to the fact that in August 2018 there were more than 2,000 cryptocurrencies in the world (data from investing.com).
The most popular cryptocurrencies for cash purchases in Russia are Bitcoin and Ethereum. Their turnover is now not regulated by Russian legislation in any way: cryptocurrency is not allowed, but it is not forbidden to use it as payment for goods and services, exchange it for rubles (as well as for any other currency) or, conversely, buy for cash. Neither the Central Bank, nor the tax service, nor the customs service can see this money. Meanwhile, according to the most conservative estimates, the daily turnover of the market for buying and selling cryptocurrencies in Moscow is $ 10 million, and on peak days it can reach $ 50 million.
“Vedomosti” got acquainted with those who are engaged in the exchange of virtual money for cash, found out how and how much they earn and what role the Chinese who trade in the “Gardener” market play in this business.
How and where to change cryptocurrency
In a Google search for the query “buy cryptocurrency with cash”, you can find many exchangers, but many do not work. The phones of the BTC24pro exchanger opened in August 2016 on Novy Arbat are “not used”. Sbercoin, which opened in the spring of 2018 a few steps from the Kursk railway station, whose representatives insisted that the exchanger’s activities were absolutely legal, also did not work for long – they already sell shawarma under its name. “We worked for a couple of months and left for a month,” says an employee of a tobacco kiosk located in the same building.
Messages about the sale and purchase of cryptocurrencies can be found in Telegram chats, for example “CRYPTO EXCHANGER | CIS ”has 5,000 participants and dozens of offers to buy and sell bitcoins per day. On the advice of the head of one of the crypto companies, the Vedomosti correspondent went to a meeting at the Berkut Corporation – this is one of the companies working with “large volumes”.
The founder of the Berkut Corporation Denis Polokhin (a former player of the professional basketball club CSKA) meets the Vedomosti correspondent in an apartment in one of the Moscow City skyscrapers. In the office, you need to take off your outdoor shoes and put on disposable slippers. Indoors – leather sofas, hookahs, a stereo system, large plasma on the wall, joysticks for computer games, mining equipment. “It’s necessary to relax. People come with a lot of money, with security and weapons, the transaction can last more than half an hour, and the strict atmosphere will create unnecessary tension when it comes to the exchange of more than $ 100,000, ”explains Polokhin. Only a machine for counting money reminds of what the office is used for.
During the conversation, Polokhin repeatedly emphasizes that the company does not violate Russian law. “All money that is brought to exchange for cryptocurrency must have documents confirming its origin,” he assures. “The owner will also have to go through a multi-factor identity check.”
There are also deals larger than $ 100,000. Polokhin shows several photographs of various stages of the exchange. On one of them there are pyramids of stacked wads of money in various currencies, on top there is an A4 sheet, which indicates the amount ($ 5 million) and the date, as well as the name “Berkut”. After counting the money, the exchanger shows an open cryptocurrency wallet on the computer – this is an account on a special service or on an exchange where the cryptocurrency is stored. The number of bitcoins on it must correspond to a predetermined value. The bitcoins are then transferred to the buyer’s wallet. Transaction confirmation may take time. Blockchain technology is designed in such a way that every new operation on the network must be included in a new block in order to become legitimate, but it takes time to calculate the values of the new block. If there are many transactions occurring at the same time on a Bitcoin network, they can be processed for several hours. A transaction is considered closed when the required amount is displayed in the client’s electronic wallet.
Polokhin says that in addition to cryptocurrency exchange, Berkut Corporation is engaged in the construction and development of IT solutions and asks to mention charitable projects: support for more than 2,000 children, a children’s basketball academy and children’s IT education. The Vedomosti correspondent was unable to find an active legal entity of the Berkut Corporation that would correspond to these types of activities. For some reason Polokhin himself refused to name it, as did the income from his activities.
Large deals – from $ 100,000 or 100 BTC (bitcoins, $ 623,321 at the exchange rate as of August 13) – have become more frequent in the past two years, Polokhin says. The exchange takes place at its own rate (on the website “berkut.org”) and depends on the trend in the market. The daily volume of transactions starts from 100 BTC per day.
But not all exchangers work with “large volumes” and a constant clientele. You can get to the International Cryptocurrency Center on the first floor of the “City of Capitals” complex in the same “Moscow City” right from the street – there are signs in the windows with offers for the sale of cryptocurrency. “We are working on a stream, quite officially and do not even think about hiding,” explains the managing partner of “Cryptocenter” Roman Kraynyak. The small office has several desks with computers, several mining farms and posters advertising cryptocurrency asset management services. “Various operations with cryptocurrency assets are our core business, not bitcoin exchange,” says Krajnyak. Legality is ensured by the Estonian company Aridika Asset Management: in Estonia you can obtain a state license for exchange and other operations with cryptocurrency.
The “Cryptocenter” opened in November 2017 during the rapid growth of the bitcoin rate, and at first there was no overcrowding in the small room: there was a queue of those wishing to become crypto investors, says Krajnyak. Now the flow has subsided, but every day 10-15 people come from the street, dreaming of making money on cryptocurrency. “They are haunted by stories of how computer geeks became dollar billionaires in less than a year,” laughs Krajnyak.
Why bitcoins for Chinese merchants
On a weekday morning, the Sadovod shopping center, a large clothing market in the southeast of Moscow, is not crowded. The complex is spread over an area of 40 hectares, you can pay with sellers throughout the territory only in cash. This is probably why an average of 10 people queue up at each Sberbank ATM in the central building of the market.
In March 2018, Mikhail Zhukhovitsky, a specialist from the banking sector (as he calls himself), wrote on his page on Facebook , that money with “Gardener” and other Moscow market, TC “Moscow” (in Lublin), output in China to pay for goods using cryptocurrencies: “Previously, to pay for crookedly imported goods, the Chinese used gray banking services <…> Since Nabiullina’s arrival in the Central Bank in 2013, a bunch of bankers have been jailed, and licenses have been taken from banks. <…> The Chinese have simply changed the way they send money. Instead of banking, they began buying up all the bitcoin available in the country. Bitcoin was transferred to Hong Kong. There it is elementary and instantly converted into cash. ” So “the Chinese have eliminated the need for banking operations between countries,” summed up Zhukhovitsky.
In April, information that the largest markets – Sadovod, TC Moskva, as well as Food City, located at the 22nd kilometer of the Kaluzhskoye Highway – “became practically pioneers and leaders in the proposal to buy cryptocurrencies,” the director confirmed. of the Department of Financial Monitoring and Currency Control of the Central Bank Yuri Polupanov at the Thomson Reuters forum. “We see the acquisition for most of the proceeds of the cryptocurrency,” Polupanov said. According to him, settlements for such transactions amount to up to 600 billion rubles. per month.
The Central Bank practically does not see that this money is credited to bank accounts, he complained and promised to send information about this to law enforcement agencies. But what this led to is not known, the representative of the Central Bank refused to comment on this topic.
Several money transfer services operate at Sadovod – Zolotaya Korona, Unistream, but their employees, having heard a question about buying bitcoins, advised to contact currency exchange offices. In one of them, an employee confirmed that there is a person on the market who sells cryptocurrency, but added that he “deals only with very large amounts.” He advised the Vedomosti correspondent to return to Moscow City, where “there are much more retail offers.”
Illegal imports of goods to Russia from China have existed for a long time, says Sergei Sanakoev, president of the APR Research Center, an expert on Russian-Chinese trade relations. Previously, unaccounted cash was transferred to China using money transfer services such as Western Union or used to pay for other goods. And with the advent of bitcoin, the Chinese began to use this very, much more convenient way to transit money.
Representatives of the Kievskaya Ploshchad group of companies (they own Sadovod and Moskva) have not answered Vedomosti’s questions for several weeks whether the lessor is aware of the transactions being carried out on its territory to exchange unrecorded proceeds for cryptocurrency.
How much do they earn on the exchange
The interlocutors of Vedomosti, engaged in the exchange of cryptocurrencies for cash, refuse to answer the question of how much this business brings them. But they agree in estimates that such operations in Moscow amount to several tens of millions of dollars every day. The average daily turnover in Moscow is about $ 10 million, estimates Dmitry Vasiliev, the former owner of the WEX cryptocurrency exchange. According to him, the number of transactions depends on the volatility of the bitcoin rate: the more stable it is, the more exchange transactions take place and the turnover can reach $ 50 million. The head of the crypto company, who asked not to be named, believes that Sadovod and Moscow buys cryptocurrencies every day worth up to $ 10 million each, and this is up to 90% of the total turnover. All operations – no more than $ 20 million per day, he is sure. Krajnyak’s assessment is more modest: purchase of cryptocurrencies for cash does not exceed RUB 500 million. ($ 7.2 million at the exchange rate of the Central Bank on September 10).
“In this market, practically no one trades with a commission of less than 1.5-2% – the risk is not worth it,” says Zhukhovitsky.
How is the commission formed in the case of cashing out cryptocurrency? The seller and the buyer agree on the size of the transaction even before the transaction. The price is usually indicated as the difference to one of the popular exchanges – Bitfinex or Binance. A standard announcement for the sale of cryptocurrency in the Telegram channel looks like this: “# Moscow-city # Selling #BTC for $ 200k # Plus 1.5% at bitfinex”. At the moment of a fall in demand, the price of offline exchangers may be even lower than the exchange price – for example, “bitfinex -1.5-2%”. The seller, on the other hand, makes money on the difference in several transactions. “Let’s say I buy cryptocurrency at bitfinex -1.5% and sell at -0.5%. The resulting 1% is my earnings, ”explains the cryptocurrency seller who asked to be named Andrew. He recalls that during the rush of demand before the New Year, exchangers bought cryptocurrency with a commission of + 5%, and sold at + 8%. he recalls. And in the summer of 2018, when the bitcoin rate did not grow, it was sold at a discount to the exchange.
Assuming that the average commission is 1.5-2%, and the daily turnover of exchangers is $ 10-20 million, Moscow exchangers earn up to $ 400,000 per day, or up to $ 12 million per month. However, one of them clarifies: “If the exchanger works with regular customers from China, the commission may even drop to 0.25%. Yes, the Chinese are pushing for a price, but from a business point of view, it is much more profitable to have a regular customer with a small commission. “
Why is the market growing obsolete
One of the main reasons for the growth of the market “cashed out” bitcoins is the desire for anonymity, the interlocutors of Vedomosti explain. “Bitcoin was created and gained popularity as an anonymous means of payment, but anonymity is becoming less and less,” says Leonid Morozovsky, founder of the Rega blockchain insurance platform. Cryptocurrency exchanges require no less stringent identity verification procedures than banks. As the Vedomosti correspondent was convinced, the Binance exchange does not allow users who have not confirmed their identity to withdraw more than two bitcoins per day (about 883,000 rubles). And on the Bitfinex exchange, for any transactions with dollars and euros, it is necessary to confirm the identity using two documents with a photo (for example, a passport and a driver’s license), the procedure can take 6-8 weeks.
“Cryptocurrencies allow you to bypass bank controls and can be used to cash out illegally obtained money. A fraudster or a recipient of a large bribe can safely transfer cryptocurrency across the border and cash it out there, ”explains Nikolay Legkodimov, partner of KPMG.
Arseniy Poyarkov, a member of the State Duma’s expert council on the digital economy, founder of the DigRate rating agency, says that this is a convenient tool for legal cross-border payments: “For example, for remuneration of employees abroad, freelancers, goods without customs declarations.” “Thematic conferences on blockchain have long been accepting only cryptocurrency; it is possible to pay with it for the services of both PR agencies and law firms,” confirms Siranush Sharoyan, Marketing Director of Crypterium.
How the government will fight cryptocurrency
The Russian authorities are still unable to decide how to regulate the turnover of the cryptocurrency. Central Bank Chairman Elvira Nabiullina said on September 4: “We see great advantages in the technologies that underlie virtual currencies, although these technologies are still quite crude. We see great risks in the proliferation of virtual currencies associated with consumer protection. These risks, in our opinion, are quite significant. In addition, the risks of using this system for money laundering. Therefore, we are very wary of this phenomenon ”(quoted by RIA Novosti).
A representative of the Federal Customs Service, in response to a request from Vedomosti, replied that “cryptocurrency is not officially recognized as a commodity or currency and therefore does not come under the control of the customs authorities.” “Issues related to cryptocurrencies are not within the competence of the Federal Tax Service,” the press service of the department said. At the same time, a federal official, who is faced with working with the cryptocurrency market, notes that cryptocurrency transactions in cash do not exceed $ 10 million per day, and therefore it makes no sense to spend state resources on such schemes. At the Ministry of Finance, the request was forwarded to the Ministry of Internal Affairs.
In July 2018, the head of the main department for drug control of the Ministry of Internal Affairs, Andrei Khrapov, wrote to the Ministry of Finance with a proposal to criminalize the shadow circulation of cryptocurrencies, Izvestia wrote. The Ministry of Internal Affairs proposed to allow work with virtual currencies only in the presence of “mandatory registration with state bodies that carry out financial and tax regulation.”
Apparently, the Russian authorities will follow this path. In May, the State Duma adopted in the first reading the draft law “On digital financial assets”, which does not recognize cryptocurrency in Russia as a legal tender, and allows only accredited operators, for example, the Moscow Exchange, to exchange it for rubles.
Those who now make money on exchange operations say that the ban will not stop the offline exchange of cryptocurrencies and will not contribute to legalization: “Most just want to make money and are even ready to pay taxes if it becomes possible and convenient,” says Krajnyak from the cryptocenter.
However, despite the absence of a legislative ban on the circulation of cryptocurrencies, in July 2018 in Kostroma a court found guilty and sentenced the organizer of the cryptocurrency exchange for 500 million rubles. to two years probation, and two of his accomplices – to 1.5 years probation, the newspaper kostroma.today reported. Initially, they were charged under the article “illegal banking”, but then it was reclassified as “illegal business activity.” This was the first verdict for cashing out a cryptocurrency in Russia. But definitely not the last one.