Photo by Quantitatives.io on Unsplash

Cryptocurrencies took a beating earlier this week as geopolitical turbulence between Russia and Ukraine roiled global markets.

Bitcoin (BITCOMP) traded as low as $36,892 on Tuesday, reaching a multi-week low. This dive was mostly connected to escalating tension between Russia and Ukraine, but Bitcoin has recovered somewhat over the past day.

Russian President Vladimir Putin on Monday ordered troops into two secessionist regions in eastern Ukraine, shortly after recognizing their self-proclaimed independence.

This dramatic move has increased fears of an imminent full-blown invasion.

Bitcoin, Ethereum, and Gold

Bitcoin hit a 6-month low of $35,030 on January 22^nd, while Ethereum hit a low of $2,405 the same day as crypto traders de-risked their portfolios following a sharp decline in stocks and in advance of the Federal Reserve’s policy meeting.

However, there are fears a full-scale Russian invasion of Ukraine could push Bitcoin as low as the key $30,000 level, which has not been seen since July 2021.

The current sustained dip below the psychological $40,000 limit is undermining belief in Bitcoin acting as a safe haven, especially as gold rises to multi-month highs at the same time.

However, Bitcoin futures are still trading at a premium above the Bitcoin spot price, reinforcing the theory that investors are hedging their long spot positions, while indicating that an impulsive move to the upside could be on the table in the near term.

Russian Cryptocurrency Law

The Bank of Russia said earlier all crypto trading and mining should be forbidden by law, but the finance ministry opted for regulation at the time.

The ministry, therefore, came up with the idea investors should be divided into different groups related to their skill level for entering the crypto market through testing.

According to the proposal, an investment maximum of up to 600,000 rubles ($7,700) in digital currencies per year would be set, and for those failing to meet the required criteria, the highest investment would be limited to 50,000 rubles ($646).

Russian President Vladimir Putin said that digital currencies in Russia “have the right to exist and can be used as a means of payment”. However, he also made clear it was too soon to talk about pricing Russia’s commodity exports in crypto.

Another factor working against adoption of cryptocurrency is the rising cost of fossil energy.

Fear of a Russian invasion of Ukraine is making European leaders reconsider energy security — especially their decades-old reliance on Moscow for a supply of natural gas.

The current situation now reveals the extent of Europe’s energy vulnerability and the lack of progress in recent years towards the formerly vaunted “energy union.”

Russian Crypto Mining

Recently, the Russian government confirmed plans to renounce crypto miners’ access to subsidized energy.

The move will most probably lead to the acceptance of different rates in electric power for companies associated with crypto mining activities, and, therefore, Russian businesses risking enormous electricity bills.

The electricity usage in the region had grown by 159% since 2021, due to illicit mining and the Chinese miners’ invasion that country decided to ban all crypto activities including mining and trading.

According to the Cambridge Centre for Alternative Finance, due to this interdiction, the Russian Federation managed to oust the US as the world’s biggest Bitcoin miner.

Meanwhile, mining cryptocurrency is still considered a “grey” area in Ukraine which is one of the greatest global appropriators of digital currencies.

However, the government keeps blaming crypto miners for illicit acting such as tax evasion, electricity theft or even running non-existent businesses.

Electricity in Ukraine is mostly built on fossil fuels sources that transformed the country into one of the top three air polluters in Europe.

According to the Ukrainian non-profit association Ecoaction - every fifth death in Ukraine is related to subnormal air quality, killing over 54,000 people in the country per year.