Global Sanctions on Russia and Bitcoin Technical Analysis

Russia and its president Vladimir Putin have been hit hard with global sanctions in the wake of the attack on Ukraine. Putin is now one of only three world leaders sanctioned by the E.U., along with Syria’s Bashar al-Assad and Alexander Lukashenko of Belarus. Russian oligarchs have also felt the brunt of global sanctions. The E.U., U.K., and United States have a growing list of the assets of the super-rich which have been frozen as well as those who’ve had their assets impounded. Additionally, Russian banks have been excluded from global trade.

The Russian assault on Ukraine has created havoc in the commodities market. In early March 2022, Nickel prices surged 100%, forcing the London Metals Exchange to suspend online trading on nickel futures contracts. The United States, U.K., E.U., Canada, and Switzerland have banned transactions by Russian banks. These countries have frozen the overseas assets of Russian banks and banned them from the SWIFT system.

What is the SWIFT System?

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The global banking system is connected via a messaging system that allows each bank to communicate with a group of banks. The SWIFT system network is part of a worldwide payment system that allows messages to be carried and payment instructions delivered from one bank to another. The SWIFT system is part of the Belgian Cooperative Society providing execution and financial payments between financial institutions globally. The upshot is that removing Russian Banks from the SWIFT system cuts off their ability to transact with the rest of the world. For example, if Russia wants to sell oil to China, it can no longer use the SWIFT system to send instructions to a Chinese bank to send money for the oil it is planning to send to China.

Cutting off Russian Banks from the SWIFT system impedes their ability to conduct regular business internationally and domestically. The SWIFT system is used in Russia by major credit card companies. Approximately 20-25% of the SWIFT domestic messaging will occur outside SWIFT.

What Will the Disruption of SWIFT Do?

The primary issue with the SWIFT interruption is that the Russian financial system will halt. Without a payment mechanism, commodity producers will not be paid and will not be able to deliver such products as oil, wheat, and natural gas. The interruption could also default on Russian obligations and create a liquidity shock within the global banking system.

Price Explosion

Since the announcement of Russian bank removal from SWIFT, there has been a price explosion in commodities worldwide. Nickel prices have doubled. Oil prices have increased above $120 per barrel, and without Russian crude oil on the market, it could continue to rise to the point of demand destruction. Natural gas in Europe moved above €200 per megawatt-hour, which is more than 20 times the price of natural gas in the United States. The West claims that Russia is using this economic pain, which is hitting consumers, as a weapon.

Technical Analysis of Bitcoin

Surprisingly, despite the need for a payment mechanism other than SWIFT, Bitcoin has had very little upside movement since the Russian invasion. This lack of demand is because there has been strong demand for the U.S. dollar as a safe-haven currency. It would also be difficult for Bitcoin to immediately take the dollar’s place as the world’s reserve currency.

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The technicals show that Bitcoin trading is hovering in a tight range, with support near the 2022 lows at 32,950 and resistance near the 2022 highs at 45,850. Short-term resistance is seen near the 10-day moving average and the 50-day moving average at 39,980. Short-term momentum on Bitcoin prices has turned positive. The fast stochastic momentum oscillator has generated a crossover buy signal. Additionally, the RSI (relative strength index), a momentum indicator, turned upward. Both the RSI and the fast stochastic are printing in the middle of the neutral range. Both of these indicators are away from their overbought or oversold trigger level.

Medium-term momentum has turned positive. The MACD (moving average convergence divergence) index generated a crossover buy signal. This situation occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

The Bottom Line

The sanctions on Russia should be devastating to their economy, wealthy Russian individuals, and leaders. Unfortunately, there will be side effects, including a surge in the price of commodities, including those that Russia exports. These commodities include wheat, nickel, oil, and natural gas. The rise in the price of these commodities is thought by many to be a weapon that Russia is attempting to use. Russian banks have been taken off the SWIFT system that allows banks to communicate and make payment and receipt requests. The move by several OECD countries has helped buoy the U.S. dollar as a haven but has yet to buoy Bitcoin. The technicals show that Bitcoin has remained subdued and could remain rangebound.