How to invest under sanctions?

At the end of February, the Russian government announced the start of a special military operation on the territory of Ukraine with the introduction of troops into the country. The situation quickly got out of hand and led to large-scale hostilities that have been going on for almost four months now. The USA and the EU sharply responded to Russia’s military intervention, and Western countries quickly began to introduce new sanctions packages. Sanctions pressure on the Russian Federation has become unprecedented; in terms of various restrictions, the country has bypassed even Iran. The sanctions themselves carry indirect damage in Russia and many other countries and even in the cryptocurrency industry.

What is the risk of sanctions against the Russian Federation?

According to an explanation on the official website of the European Commission, the sanctions target the Russian economy, the Kremlin, and the authorities in general. The purpose of the sanctions is to contain the economic potential of the Russian Federation and achieve a state in which it will be too economically unprofitable to conduct further hostilities. In general, the direction of the sanctions policy is well reflected in the following quote:

“The sanctions are designed to maximize the broader negative impact on the Russian economy while limiting the impact on EU businesses and citizens. We [the European Commission] applaud the diligence of EU companies in complying with the current complex system of sanctions.”

And here lies the main problem of sanctions against Russia for the world. The economy of the Russian Federation, even before the outbreak of hostilities, was (and still is) firmly integrated into the activities of the same European Union. European countries actively buy Russian energy resources (gas, coal, and oil). The well-being of the average consumer and the industry depends on their uninterrupted supply. The dependence of some countries (for example, Germany) is significantly higher. It is impossible to quickly replace all energy resources for the EU, as it takes time to create new supply chains. It will take the EU at least several years, if not even a whole decade, to ultimately “free themselves” from dependence on the Russian Federation in the energy sector.

With a reduction in the supply of any asset on the market (and in this case, these are Russian energy resources), the demand for them increases. Accordingly, the price also increases. Electricity prices in Europe have risen alongside natural gas and coal prices, but the European Union is preparing further energy sanctions against Russia. The sixth package of sanctions has already been adopted, providing an embargo on Russian oil supplied by sea. But at the same time, the resource still comes to Europe through a pipeline (including through Ukraine).

German electricity prices for next year, the benchmark for European electricity tariffs, have risen to their highest level this year. Similar dynamics are observed in France, Great Britain, and Scandinavia. Recall that a complicated situation for those who invested in mining electricity is the leading resource for Bitcoin mining. The growth of its value will force some miners to leave the market altogether; the rest will have to adapt to new business conditions.

The reaction of world markets to sanctions

Let’s start with the most important — the energy cost in the period immediately after the start of active hostilities. By the beginning of March, the price of 1,000 cubic meters of Russian gas in Europe rose to a maximum of around $3,800, after which a sharp drop and stabilization began. The growth happened against the backdrop of general panic and confusion in the markets since it was still challenging to predict the further reaction of the EU to the war in Ukraine.

An essential factor in the “energy confrontation” between the Russian Federation and the EU is the scheme of payment for energy in rubles. It was proposed by the Russian government a couple of months ago as a way to add value to the national currency. So far, not all EU members have fully agreed to switch to the new scheme.

The second resource is oil. The value of West Texas Intermediate (WTI), the global indicator of oil prices, also began to rise rapidly immediately after the war. At its peak, it reached almost $130. Sometime after the rollback, the cost of oil does not stop. Now it is above $120. The reasons for the growth are the same — the oil embargo of the Russian Federation, even if not in its complete form (that is, with the possibility of delivery through the pipeline), is a shock to the world resource market. Countries must rebuild supply chains to secure their resources in the face of sanctions.

Now let’s move on to the US stock market. Recall that the price of Bitcoin has been quite dependent on the value of US stock indices for at least the last six months. This is especially noticeable on the chart of the S&P500 index, which reached a local minimum at 3815 by mid-May. Recall that the S&P500’s historical maximum is at 4805.

A similar situation is visible on the NASDAQ chart. It is worth noting that the collapse of the US stock market since the beginning of the year is associated with military operations in Ukraine and the ongoing policy of the Federal Reserve System. Now it is engaged in liquidating the consequences of the prolonged issue of the dollar against the backdrop of the COVID-19 pandemic.

The situation in the Russian stock market is much worse. The MOEX index of the Moscow Exchange immediately after the war collapsed by more than 50 percent; a similar trend was demonstrated by many large companies in the Russian Federation. The situation became so critical that it ultimately decided to stop trading on the stock market. They resumed only at the end of March in a limited mode.

But for gold, as the leading precious metal, the period of economic turmoil was very beneficial. From the end of February to April, the price of gold hit a record high of $2,070 an ounce before pulling back. Such dynamics are explained by the fact that precious metals were the №1 investment during the crisis. Their price is not subject to any inflation, and most investors perceive gold as a “haven” for their capital.

It is rather challenging to determine the average cost of electricity in the EU countries or even in the USA since it can differ significantly by region for different consumers, even in one country. But in general, the growth in the cost of the energy mentioned above resources is unlikely to have a positive impact on electricity. Recall that this is an essential resource for miners, so its substantial price rise should cause a significant increase in the hash rate of the Bitcoin network.

Have sanctions affected the crypto market?

Despite all its decentralization, the crypto market has many “points of contact” with the traditional financial system. These are payment gateways for buying Bitcoin with non-cash money. Numerous companies have become so prominent in the crypto industry that they cannot escape regulation from the authorities.

Of the latter, the largest crypto exchange Binance has become a striking example of the imposition of sanctions. In April, it announced a significant limitation in providing services to users from Russia. Now, accounts owned by Russian citizens or organizations with a balance more outstanding than 10,000 euros are placed in withdrawal-only mode and cannot safely buy Bitcoin. It is noteworthy that the amount of the credit also considers open positions with leverage in futures trading. In April, it was announced that the category of users who fell under sanctions had 90 days to withdraw their funds from the exchange.

In addition to individual exchanges, the US government sanctions list also included tens of thousands of crypto wallet addresses, one way or another, connected with Russian users who can no longer legally buy Bitcoin through crypto exchanges. These are oligarchs, businessmen, politicians, and all those who were on the sanctions list almost from the very beginning of the military invasion of Ukraine.

Sanctions against individual players in the crypto market are a precise measure for reinsurance by the US and the EU. This is done so that Russia cannot circumvent economic pressure with the help of digital assets. True, it is unlikely that such a strategy would be successful, even if the Russian government put enough effort into this (recall that cryptocurrencies remain without recognition by the Central Bank). The thing is that, practically, liquidity and activity in the crypto market do not give enough space for meaningful economic activity at the state level.

How does all this affect cloud mining?

Platforms for the cloud mining of Bitcoin are not much different from ordinary miners in terms of needs — they also need electricity (albeit in a much larger volume) to ensure their activities. In addition, some Russian mining companies have been directly hit by US sanctions. Among them is the Bitriver platform, the largest operator of data centers in the CIS to place equipment for energy-intensive and blockchain computing. The sanctions will harm BitRiver and its various subsidiaries by blocking them from accessing US cryptocurrency exchanges or mining equipment. Naturally, this is unlikely to stop the activities of both Bitriver and many other similar companies in the Russian Federation. But the local market will have to adapt to new conditions and look for the most profitable offers for electricity supplies. Luckily, Hashmart cloud mining has not been affected much.

In our activity, there is a slight increase in spending on the same electricity plus equipment maintenance. However, consumer fees and mining plans have not received any negative impact. The platform continues to operate normally.

Moreover, for many investors from Russia, the choice in favor of Hashmart when investing in cryptocurrencies can be decisive. Recall that if earlier the prices for video cards and ASICs grew at a tremendous speed due to the rise in the price of Bitcoin, now their cost in the Russian Federation will be very high due to sanctions. Many types of equipment fell under export restrictions to Russia, and now the country is forced to introduce parallel imports.

Parallel import is the importation of goods into the country without the trademark owner’s consent. In Russia, it became widespread just a couple of months ago due to sanctions. The main problem with parallel imports is that the cost of goods for the final consumer will increase due to the cost of supply. That is, the cost of creating your mining farm in the coming months may become unprecedentedly high for citizens of the Russian Federation.

The only way out for those who want to start mining cryptocurrencies is to invest in cloud mining. By renting the power of Hashmart, you can immediately begin receiving payments almost daily to your crypto wallet. This is a very reliable scheme for creating a new source of passive income.

Conclusion

The overall verdict on the geopolitical and economic situation in the world remains disappointing. Sanctions against Russia are unlikely to be lifted soon while the course of confrontation with the US and the EU continues. This, by the way, has been repeatedly stated by high-ranking officials of the countries mentioned above. In such a situation, the import of electronics, especially complex ones (video cards and ASICs), will remain the “weak point” of the country.

However, economic problems are not a reason to despair and forget about great opportunities to increase your investments. If you can buy Bitcoin with a Russian card, investing in Hashmart will be a great passive income bonus. On our platform’s website, you can find profitable contracts and start cloud mining of both Bitcoin and Ethereum.

Another plus of this strategy is that the crypto market has almost reached its bottom after a long fall over the past few months. The military conflict in Ukraine will end, which may well lead to a noticeable local growth in the stock markets of both Russia and the United States. Given these conditions, coins mined today using Hashmart will already be significantly more expensive in the following months and will bring you additional profit.

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Andrey Costello

Andrey Costello

Bitcoin-maximalist. Optimistic family man and miner with six years of age. I write about complicated things from the future for people of our days.