It looks like a repeat of what happened to spark the Bitcoin and crypto-revolution in 2014, capital flight fueling demand for the currency. Then Chinese were protecting their capital to get around capital controls during the infamous “Taper tantrum” and subsequent shock Yuan devaluation by the People’s Bank of China.
It was this capital flight which fueled the meteoric rise of Bitcoin to over $1000 the first time. Once that capital inflow receded, so did the price. But, what it did then was legitimize Bitcoin as a means of cross-border capital flow which governments could no longer control.
The subsequent crash took away nearly 90% of the peak, but so what. It established the next leg of cryptocurrency development. Now that the dollar liquidity crisis is beginning in earnest, and will continue for the next couple of years, Bitcoin and other cryptocurrencies will see it’s use in this context rise dramatically as a safe-haven asset.
Fast forward to today. With the Iranian Rial in freefall versus the dollar thanks to both Iranian policy of shifting trade out of dollars completely and the U.S. pulling out of the JCPOA, Iranians are trying to get their wealth out of the country via Bitcoin to protect it until the crisis clears.
Zerohedge has the story from Cointelegraph.com:
At the same time, Iranian government moves to head off a currency crisis could lead to further capital flight via cryptocurrencies.
On Monday, the Central Bank issued a new directive setting stricter limits on the amount of foreign cash travelers can take with them out of the country. Travelers can leave Iran by air now with only $5,980 (5,000 euros, or the equivalent in any foreign currency). The new amount halves the previous amount allowed. Leaving by land, rail or sea has a limit of $2,392 per person.
Also in April, the central bank banned the country’s banks from offering services to cryptocurrency firms or from dealing in cryptocurrencies domestically. This has led to a flourishing business for cross-border crypto deals with Iranian citizens desperate to get their money out.
The Iranian government is making all the standard moves to control the rout of its currency but it won’t matter. The rial will only be stabilized at this point via cross-currency swap arrangements that allow dollars into the country to pay off dollar-denominated obligations and re-value them in either the local currency or something like the Russian Ruble or Chinese Yuan.
The people protecting their wealth via Bitcoin (approximately $2.5 billion so far) is the smart move for them and the more they protect while this adjustment occurs the quicker Iran’s money markets will stabilize.
But, so far, I haven’t seen that. And that makes right now the most dangerous time for the country and it is what the hopes of Donald Trump, John Bolton and Netanyahu rests on. If they can get a political revolution to occur in Iran through currency debasement then that will be their only shot at overthrowing the theocracy. Otherwise, once things begin to stabilize, the moment will pass and the real resistance to Washington in the region can begin in earnest.
The headlines coming out of Europe this morning signal they may be finding their spines there*.
Guenther Oettinger made it clear that Europe will not be viewed as a vassal state of the US, stating that “Trump despises weaklings. If we back down step by step, if we acquiesce, if we become a kind of junior partner of the US then we are lost”, moments ago Reuters reported that the European Commission is set to launch tomorrow the process of activating a law that bans European companies from complying with U.S. sanctions against Iran and does not recognise any court rulings that enforce American penalties.
“As the European Commission we have the duty to protect European companies. We now need to act and this is why we are launching the process of to activate the ‘blocking statute’ from 1996. We will do that tomorrow morning at 1030,” European Commission President Jean-Claude Juncker said.
This is a classic case of blowback for poor policy and bullying behavior. If this reaction was what Trump was hoping for then he is the undisputed 4-d chess master. Because if his goal was to piss off the EU to the point where they are willing to openly defy him on Iran then that means he’s getting ready to wind down NATO as well as our involvement in it.
With Angela Merkel meeting with Russian President Vladimir Putin this morning for the second time in two weeks (and the first two times since 2014) it would seem that the EU is serious about telling Trump to ‘get stuffed’ and will begin releasing the pressure on Russia.
That means the maximum pressure policy put on Russia earlier in the year has failed to produce the intended result. The lies concerning both the Skripal poisoning and the chemical weapons “attack” in Douma, Syria have Merkel inching further away from Trump and more accepting of Putin’s version of events and offers.
We still won’t see any real thaw on Crimea, but certainly opposition to the Nordstream 2 pipeline will be gone. The problem for Merkel is that Italy may make that choice for her on Crimea the next time the sanctions come up for extension.
In all of this Bitcoin will emerge as a safe-haven asset in emerging markets all around the world as the global sovereign debt crisis accelerates. Expect to hear plenty of stories about Bitcoin and Turkey, Malaysia and even Mexico in the coming days/weeks.
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