March 9, 2022 - 12:30pm
In a perverse way, Russia’s illegitimate invasion of Ukraine on the 24th February has legitimised both the existence of Bitcoin and its case for a primary role in the global monetary system of tomorrow. Many are starting to call this era Bretton Woods III.
In a deliberate strategic move in 2018, and presumably to taper the consequences of future potential sanctions, Russia divested its US Treasury holdings and drastically reduced its reliance on dollar-denominated assets. But when the West levied harsh sanctions on Russia after it attacked Ukraine this year, Russia was unable to turn to reserves held at other central banks — the Bundesbank, for example, has blocked Russia from accessing euros on deposit with the German central bank.
With Russia unable to access central bank reserves, unwilling to hold US Treasuries, and aggressively buying gold to escape Western sanctions, the monetary system appears to be showing some signs of reversion.
Enter Bitcoin. While lacking the necessary market penetration and capitalisation to step in as the world’s new hybrid collateral/settlements network, Bitcoin’s golden era begins now. And thankfully, it’s not because Russia is deciding to use it. Across the border, Ukraine’s government became the world’s first to solicit donations in cryptocurrency, starting with a tweet (above) from the official state Twitter account telling users that Bitcoin and Ethereum donations would be accepted.
While Russia is still relying largely on its gold reserves and relationship with neighbouring China, other geopolitical players are looking at the fracturing of the monetary system with one eye on Bitcoin. El Salvador, a country without its own currency, was the first to declare Bitcoin legal tender with up to 2% of its reserves currently held in Bitcoin. Similarly, Vietnam and Ukraine are among the top countries for Bitcoin adoption last year (numbers one and four respectively) according to a recent study from Chainalysis. Meanwhile, adoption in Nigeria (number 6) has been accelerated by a steady devaluation of the Nigerian naira.
We are thus witnessing a transition in the global monetary system that has been accelerated by the Russian invasion of Ukraine. And although the volatility of Bitcoin remains a problem, for many countries it is a far safer bet than their domestic currencies.
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SubscribeI like the fact that bitcoin isn’t controlled by any government and that it can work as a hedge for people worried about losing currency value due to hyper-inflation. An unstable hedge but an accessible one at least. Bitcoin is still a strange concept to me though!
It’s probably no coincidence that, as reported in Politico, Biden is now accelerating review and implementation of federal policies for regulating crypto markets, although I’m not sure how effective such policies will be outside the US.
…the Biden executive order yesterday for studies and reports on crypto, are essentially aiming at the ‘off ramps and on ramps’ between cryptos and other currencies and assets. The US self interest in this is in maintaining the USD as the world reserve currency, and protecting its tax revenue collection. (Blockchain transactions are transparent and do not obstruct the oversight of the IRS.) But if the US tried to eliminate the use of cryptos, even in association with say the BOE, IMF and other central banks, that would risk a massive and sudden stampede into cryptos worldwide. The best for everybody, is if the US settles for managing the ramps. That way, the transition away from the USD as the sole reserve currency, towards a more ‘sound’ basket of asset based drawing rights ( including cryptos) is likely to be more orderly.
Canada tried to demand information about crypto donations from some crypto currency exchanges and were politely told to go pound sand. They didn’t seem to understand that is one of big reasons why people use crypto currencies in the first place.
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