Megafon Issues Russia’s First Crypto-Bond

For months now Russia has been moving into the blockchain space in a serious way. I’ve talked about these moves in previous articles (here, here and yes, even here)

But, the latest news is one that should have every one stand up and take notice. Russian Mobile phone operator, Megafon, issued RUB500 million in zero-coupon blockchain-based bonds recently. This was purely a proof of concept issuance.

But, it speaks to the bigger picture of bypassing traditional book runners, i.e. the major banks, for selling securities to investors. No longer does Goldman Sachs, Standard Charted, HSBC and Deutsche Bank have a stranglehold on how capital is raised for emerging markets.

Moreover, it will prove just how much of an advantage the blockchain has over these older and much more expensive business models.  This reduces the cost of a bond issuance to practically nothing, beyond the needed legal work.  These bonds can and will be sold without the need for the middle man to take a huge cut.

The blockchain is changing everything.

This news also puts paid the news from a couple of months back that the National Settlement Depository is moving, via the WAVES platform, to token-ize as much of the Russian economy as it can. This is your first example of their integrating with the Moscow Exchange to trade securities via the blockchain.

This drives another comparative advantage for companies looking to raise capital, listing fees and access to market makers, which are also being squeezed out of the market.  The term is disintermediation. Get to know it and embrace how it will drive out old transmission loss out of finance and other sectors of the economy.

And now this is why all of this is so important. As I said when we first heard of this plan back in August:

The better plan is to loosen central bank policy, issue some ruble-denominated debt (or yuan) while building up the crypto infrastructure to absorb those capital flows without creating dislocations within the ruble market.

This creates a more natural and organic flow of capital into the country without it causing social upheaval. Like the announcement of Russian Miner Coin, this move by the NSD is just another building block in the foundation of a more resilient Russian financial system to better coordinate the flow of capital and smooth the development of the chain of production.

This, in turn, limits the effects of U.S. sanctions. Once the market comes to the conclusion that Russia treats capital better than the U.S. does, the current trickle will become a torrent. And Russia has to be ready to handle this.

These are the reasons why the U.S. is so angry with Putin and Russia. They are building infrastructure which attacks the foundations of U.S. financial and geopolitical power. And they are doing it the Russian way, by deploying capital like a scalpel, not a sledgehammer.

This is the kind of news that sits below the headlines but has enormous long-term effects. If this test is successful then expect larger issues in the near future, allowing Russia to prove to the market that the rules have changed and it is capable of providing investors with security along with the potential for great returns on their money.

That’s the key, folks… confidence. Russia and China are working to increase investor confidence while the U.S. and EU are punishing investors because it is a privilege to use the dollar and/or the euro.

Capital flows to where it is treated best. ALWAYS.


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20 thoughts on “Megafon Issues Russia’s First Crypto-Bond

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  15. “That’s the key, folks… confidence.”

    Has that Martin Armstrong ring to it. Capital flows to where it feels safe.

    I’m beginning to be persuaded to cease looking for the pony under the manure pile and settle for transparency, security and confidence. I’m sure there’s more to the value proposition, but it escapes me for now.

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    • Remember that just because Bitcoins are digital assets does not mean they weren’t built from physical ones.

      That’s the hardest thing for people to wrap their heads around. It takes a lot of electricity to create the next lot of Bitcoins. Estimates are as high as $1500 per coin in electricity alone. Then there’s the oil burned, the energy spent to lay the copper the network is carried on and the rest.

      If the internet itself has value then encrypted packets that a lot of people who spent time verifying are exactly what they say they are also have value.

      The difference from the digital dollar is that the dollar is leveraged against your future labor (debt) while Bitcoin is a consequence of previous action.

      One looks an awful like like gold and the other a lot like slavery.

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      • Tom: I’d like to see you address this subject I raised in whatever forum (your blog, 3G, etc. works best for you–the future value of a Bitcoin in any of its iterations. The fact that it was “mined” from electricity and the materials used to build the infrastructure to produce the electricity doesn’t appear to make that particular “investment” of tangibles physically available as durable value for production of future tangibles.

        You wrote: “If the internet itself has value then encrypted packets that a lot of people who spent time verifying are exactly what they say they are also have value.” The internet permits me to communicate and arrange the exchange of tangibles and intangibles ad infinitum. I note that both are utterly dependent on the generation of electricity. I am confronted on the internet with the same issues of security, transparency and confidence that I raised in the comment above. Both Bitcoin and the internet facilitate the process of exchange. Our confidence in both rises when we agree that we get from either what we thought we are getting,

        As you point out, the global monetary system is contingent on the creation of debt. And arguably therefore, my slavery to it in consequence. Bitcoin is contingent on the mining of electricity and the energy it took to produce the electric generating infrastructure. I don’t perceive these two propositions to be an apt opposition. The end of a debt-based monetary system has terrific appeal when the use of words like “slavery” are used. Still, I can hear Humpty Dumpty correcting Alice:

        ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’
        ‘The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all.’ (http://sabian.org/looking_glass6.php)

        Your articles to date on cryptos have been very useful and illuminate the nature of the war being conducted against the sovereigns–Russia and China– who are resisting destructive, exploitive western hegemonists while these sovereign nations devote their natural resources to the development and welfare of their people in the manner they choose. I’m looking forward to more of your analysis about the inherent value of the cryptos as reliable stores of wealth.

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      • You raise important points about the nature of these things… what’s important to remember that nothing in particular has any ability to ‘store value’ only the potential to do so.

        We impute value into objects/ideas based on our needs of the moment with a discount for future needs per the Law of Diminishing Marginal Utility.

        All value is subjective is the first rule of Austrian Economics. Gold’s value when it is no longer needed to keep governments honest will likely fall to zero if no other uses are found for it.

        Bitcoin as it stands today is a brilliant medium of exchange and unit of account, two of the three pillars of money.

        It is not, however, a good store of wealth. Gold is. Bitcoin is untested in that area. And we won’t know if it will be until all the capital that wants to flow into it flows into it.

        The same thing is said about all new technologies, including the internet.

        So, as an investor, you have to ask yourself, “Has all the capital that wants to flow into Bitcoin done so?”

        IF yes, don’t buy any. If no, buy some even if you are unconvinced of it. Because if there is clearly a flood of money on the sidelines looking to get into it then it is under-valued and you should own some of it.

        Allocations are up to you.

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  16. Correction: “I note that both are utterly dependent on the generation of electricity” should read “I note that both the internet and Bitcoin are utterly dependent on the generation of electricity.”

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