Mining collects shareholders – Newspaper Kommersant No. 35 (7480) dated 03/01/2023
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The first closed-end mutual fund may appear on the Russian market, focused on investments in mining companies. In fact, it will be a venture investment fund, within which the acquisition of mining equipment will take place through a specially created LLC. The latter will lease equipment. But the high profitability of such investments, market participants emphasize, is accompanied by high risks: the lack of regulation of mining, the negative attitude of the Central Bank towards it, and the volatility of bitcoin.
Finam Management Company is going to register the rules of a new closed-end mutual fund, which will earn on bitcoin mining. The head of FG Finam, Vladislav Kochetkov, specified that the rules of the fund will be sent for approval to a specialized depository after March 1. The fund will be available only to qualified investors with a minimum threshold of 300 thousand rubles.
The company intends to raise 500 million rubles to the fund, after which an LLC will be established with these funds. As Mr. Kochetkov explained, the company will use part of the funds to purchase equipment for mining, and reserve the remaining money to pay for electricity and maintain the fund. The created company will not be directly involved in mining, but will lease the equipment, the cost of which will be tied to the bitcoin rate. “The first tenant already exists, this is a hosting company for mining,” Vladislav Kochetkov noted.
Finam’s offer is unique for the Russian market. Management companies (BCS, Pervaya) created only mutual funds focused on companies developing blockchain technology. In 2021, a number of MCs made attempts to register the rules of funds for cryptocurrencies and their derivatives. However, the Central Bank reacted extremely negatively to this undertaking and banned the inclusion of foreign crypto assets in mutual funds (see Kommersant dated December 14, 2021).
Kommersant’s interlocutors in the collective investment market believe that over the past years, the regulator could soften its attitude towards at least mining, and therefore the launch of a new fund can be approved. Artem Mayorov, director of the asset management department at Ingosstrakh-Investments Management Company, noted that if the Central Bank allows the product to enter the market, the company also plans to launch it.
BitRiver, which provides services for the placement of mining equipment, noted that since the fourth quarter of 2022, there has been an explosive increase in interest in the company from the largest banks, investment companies and management companies. “We are in the final stages of negotiations on the organization of a number of funds related to investments in industrial mining, and we plan to implement them both in the form of a closed-end investment fund and in the form of a CFA,” said Alexander Baryshnikov, head of digital project development at BitRiver.
The interest of market participants in mining is associated with a sharp narrowing of investment opportunities in the Russian financial market, as well as the potentially high profitability of such investments. According to Artem Mayorov, the profitability of mining at current prices for bitcoin ($23-25 thousand), equipment and the exchange rate can reach 50% per annum, depending on the cost of electricity. At 50-60% per year, Alexander Baryshnikov estimates the profitability.
However, according to EMCD Commercial Director Igor Rylnikov, investing in such closed-end mutual funds will be quite risky, especially given the repeated revision of the bill on mining and the lack of a consolidated position of the authorities on the regulation of cryptocurrencies. In November 2022, the bill on mining was submitted to the State Duma, but has not yet reached the first reading. “The establishment of a legal framework for miners in the Russian Federation is likely to negatively affect the income level of business participants if they completely abandon gray schemes. And how exactly the regulators will control the participants in the industry is not clear,” says Nikita Vassev, co-founder of 0xprocessing.
Market participants also note the risks associated with the purchase of equipment. “Equipment quickly becomes obsolete and loses its effectiveness in relation to new “supercomputers”, which can significantly affect the potential return on investment,” says Vladimir Zelenov, head of the corporate client department at Alfa Capital. In addition, it is worth considering the high dependence of demand for mining on the cost of bitcoin.
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