According to Vladislav Ginko, a lecturer at Mosco’s Russian Presidential Academy of National Economy and Public Administration, the new rounds of US sanctions will indeed push Russia to invest in Bitcoin. He said that he is appearing recently on Russian state TV and radio providing economic commentary and saying that much of his recent work has been in persuading Russian officials that bitcoin is the best way to mitigate the impact of new sanctions on Russia. If this is the case, it could be huge.
The idea of a state level actor getting into cryptocurrencies in indeed inevitable and when it does happen, it is going to push the bull market to new extremes.
If a country is going to start adopting bitcoin as a percentage of their strategic foreign reserves then Russia may just be a prime candidate for that to happen. Recently Russia has been drastically increasing the number of gold reserves. Now gold currently at around $41.2 million a ton, in the last months of 2018 Russia bought around 92 tons or $3.8 billion worth of gold bringing the total gold stockpile in Russia to 2066 tons or approximately $85 billion worth of gold.
Russia has been progressively moving away from the dollar and the dollar is moving away from Russia as well. The United States has been very antagonistic towards Russia so it’s no surprise that they wouldn’t want to be using the currency of a country which is continually hostile towards them. Russia’s US treasury holdings have dropped from $96.1 billion back in March 2018 to $14.4 billion in September 2018. We don’t have a current number on that but it is continuing to fall until they completely relieve themselves of US foreign currency holdings. The Kremlin, of course, fears that US sanctions may end up freezing a significant portion of country’s international reserves and that would be a terrible situation for Russia and as we see sanctions continued to be pulled against Russia they have rightly paranoid and its probably not a bad idea to be exploring alternative options.
Currently, the Russian Central Bank has around $460 billion worth of gold and foreign currency assets. So to see them diversifying into bitcoin could be very interesting. Although if it does happen, Russia is going to buy that on the OTC market if we imagine that Russia is going to take just 1% of the assets which would be $4.6 billion invested in bitcoin, that’s a massive amount of money.
So the OTC statement actually kind of ignores the reality of the markets because that $4.6 billion would equal more than 1.2 million bitcoins at the current price. Nevertheless, the OTC markets would have a tough time filling those orders in a quick fashion. So the OTC desks are going to have to go to regular exchanges and buy more bitcoin and that would surely have an effect on the market. Let’s just assume that if Russia is able to fulfill all of its orders via some magical OTC desks which have enough bitcoin to meet that demand, that’s probably going to be most of the available OTC bitcoin on the markets. So then the OTC desks are again going to have to go to regular exchanges and buy more bitcoin to put their stockpiles together.
The sad truth is that the system that the financial system which has been primarily US-led has been used as a financial weapon against other countries. Finance and money have been weaponized and that’s exactly what’s happening. Predatory loans against poor countries, for example, sanction regimes etc. It’s all one-sided and its all hypocritical but bitcoin doesn’t care.
Currently we see a situation where the United States is forcing Europe to do things that Europe doesn’t necessarily want to be doing and so in response to France, Germany, and others not wanting to always have to be the dog following America’s lead, they are proposing some of their own solutions to free themselves from a one country dominated financial system. So France and Germany have announced that they are looking at a new international trading system beyond US control. Germany would likely include Russia in this because they are such major partners that haven’t been officially the part of the announcement and just speculation.
French finance minister Bruno Le Maire or Mr. Bitcoin as they call him in France has agreed to the overall idea with Germany. He said that we are determined to work on an independent European or Franco-German finance tool which would allow us to avoid being the collateral victims of US extraterritorial sanctions. These countries which are the closest allies of the US are looking for alternatives.
It’s interesting that they don’t need a new SWIFT network, they could just use bitcoin. That would be totally next level if some of the world’s biggest economies all started using bitcoin to interact with one another in terms of international transactions. Now the reality of Russia investing or not investing in bitcoin, we can definitely see the use case.
If you want to talk about fear of missing out, just wait for Russia to announce that it’s going to buy 1.2 million bitcoin. You think Japan is going to sit back watch Russia gobble up all the bitcoin, You think China will sit back? This kind of country-level FOMO could be unimaginable big when it comes down to it. We could see countries literally adding hundreds and thousands of bitcoin to their strategic reserves and for these countries, it’s not a huge amount of money.
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