Russian cryptomining challenged by strong ruble, sanctions

To mine bitcoin, it really helps to have a cold climate – to keep the computers cool – and cheap energy to power them. Russia has both. So last year, Denis Rusinovich, a bitcoin miner and co-founder of the cryptocurrency mining advisory service Maveric Group, seriously thought about starting a mining business in Russia. Rusinovich was born in Russia but is a British citizen.

“Purely from a bitcoin mining perspective, Russia was definitely a top destination,” Rusinovich said. – But that was last year.

This year, after Russia invaded Ukraine, things look completely different. Sanctions have isolated Russia from the global economy; it is difficult to start any business there now. But in addition to the geopolitical situation, the ruble’s strength is a big blow for Rusinovich.

The Russian currency climbed to a seven-year high against the dollar this summer despite sanctions. That’s partly due to the Russian government’s attempts to protect the ruble from sanctions, as well as rising oil prices. Doing business in Russia is more expensive now.

“The stronger the ruble, I think it definitely reduces the potential for any mining in Russia,” Rusinovich said.

The price of bitcoin has plummeted this summer. But when bitcoin fell last year, mining in Russia was not greatly affected, said Alexander Neumueller of the Cambridge Bitcoin Electricity Consumption Index.

“Russia – in terms of mining activity – is relatively stable. You don’t have these big swings,” Neumueller said.

CBECI has not released data on how bitcoin’s recent slide has affected mining in Russia, but Neumueller said that at the start of this crash, things looked different there.

“We already saw that Russia is a little bit down in terms of actual mining activity,” he said.

Now some Russian miners are trying to move their operations to nearby countries. Sanzhar Amangeldy is a lawyer representing bitcoin miners in Kazakhstan. He said some Russian miners approached his firm about setting up mining operations in Kazakhstan, but they appeared to be involved in criminal activity.

“We declined their offers,” Amangeldy said.

Some US lawmakers have warned that crypto-mining could help criminals – and the Russian government – ​​evade sanctions. But the risk is low, said Jonathan Levin with crypto research platform Chainalysis.

“The scale you need to build this on is something massive to move the needle on sanctions evasion.”

The latest data from CBECI suggests that the electricity used by bitcoin miners globally has fallen since the beginning of June.