You should make your investment decisions on your own, without directly worrying too much about the actions of other investors. But sometimes, certain gargantuan investors, or groups of them, can bring so much capital to bear that their behavior is worth understanding in detail — especially when they’re accumulating relatively volatile assets like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH).
There’s one particular and relatively new pattern of behavior among a group of major investors that’s important to know about. It might not push the prices of these coins up indefinitely, but it’s already having an effect.
Bitcoin and Ethereum are assets with a global distribution. That means that in most major economies, people and businesses buy, hold, and sell them, even if it isn’t fully legal to do so. In many major countries, cryptocurrency exchanges are operating legally as well. But even fully legal exchanges within well-defined regulatory regimes can be used for illegal or otherwise less-than-wholesome purposes, like dodging international sanctions or money laundering.
Russia extracts, refines, and sells a lot of oil. In terms of dollars, Russia’s oil trade was worth $192 billion in 2024; the country’s native currency is the ruble. Much of that trade is oil sales to India, which uses the rupee as its currency, and China, which uses the yuan. But due to international sanctions on Russia stemming from its war against Ukraine, selling oil in exchange for rupees or yuan directly is not as easy as it used to be, as it’d entail violating sanctions.
So now, per Reuters reporting in mid-March, Russian oil businesses are using Bitcoin, Ethereum, and other cryptocurrencies to facilitate their payments and evade the barriers to trade posed by the sanctions.
To illustrate how this process works, let’s say that a company in India wants to buy oil from Russia. First, the company pays a sketchy middleman, typically a shell company, in rupees. Then, that middleman exchanges the rupees for Bitcoin, Ethereum, or a stablecoin. This is an action that is not in and of itself in violation of any sanctions, so it isn’t inhibited in any way at the point of the exchange. Next, the cryptocurrency is sent to the Russian business selling oil. That business then sells its crypto to convert it into rubles.
The payment is cleared, and the oil is transferred accordingly, effectively skirting the sanctions. One Russian crypto exchange faced sanctions from the U.S. and European Union for facilitating this type of workaround in 2022. This ultimately led to it shutting down in early March of this year after some of its stablecoin wallet addresses were blocked by the coin’s issuer. However, it’s very likely that other exchanges are still in operation, and that more can spring up to take the fallen one’s place.
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Therefore, investors should calculate that the sanctions evasion trade is more likely to continue using Bitcoin and Ethereum than it is with stablecoins moving forward. This will create buying pressure for those two coins for as long as the sanctions last, and perhaps even beyond that.
The force of that pressure may be substantial, depending on future demand for Russian oil.
Cryptocurrency’s legal status in Russia is shifting in real time. Its central bank just implemented a three-year pilot program enabling wealthy investors to trade cryptos and derivative financial instruments. The ongoing process is bound to have implications for how the country’s domestic businesses can use Bitcoin and Ethereum to avoid sanctions.
Thus, most investors shouldn’t commit to buying significant quantities of Bitcoin and Ethereum based solely on the evasion trade. It’s unclear how long Russia will be facing sanctions, so the buying pressure represented by its oil companies may taper off suddenly, causing prices to fall or be more volatile than usual. It’s also unclear if there will be attempts at enforcing the sanctions, given the nature of the particular cryptos used.
But, like it or not, this saga supports one of the key pillars of Bitcoin’s value, which is that it’s a form of money that’s not subject to the oversight of any one country in the way that fiat currencies are. If it were like fiat currencies and not independent of governments, there’d be a large probability of a central issuing authority blocking the wallet addresses of known sanctions evaders. The whole point of the Russian oil businesses using Bitcoin here is that there’s not any authority to say they aren’t allowed to do what they’re doing. That confirmation of part of its investment thesis could be seen as another reason to buy it, provided that the intention is to hold it for the long term.
With Ethereum, this new driver is less relevant, and less likely to be sustained. While purchasing from sanction-dodgers could still generate higher prices over the coming months and perhaps even years, the existence of a relatively altruistic senior leadership team in the form of the Ethereum Foundation suggests that there might be some effort to adapt the chain such that it can’t be used for nefarious purposes.
If you buy it to capture value from the evasion trade, the upside could be very short-lived, with a painful correction on the other side. Therefore, it isn’t a good idea.
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Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
A Few Major New Players Are Buying Bitcoin and Ethereum. Should You? was originally published by The Motley Fool
