UPDATE: There is serious doubt about the validity of this story. Read this report here. As for everything else said in this article, if it does turn out to be not true that Russia is looking to buy $10 billion in Bitcoin, then consider this post a roadmap to what would happen and what it means if they did.
Back in 2017 I talked at length about Russia’s growing love affair with cryptocurrencies. From Venezuela’s Petro to the announced Crypto-ruble, there has been a lot of smoke when it comes to cryptocurrencies actually being used to facilitate real world transactions, but precious little fire.
The Russians just lit a massive one.
By announcing they would be diversifying $10 billion of their foreign exchange reserves (out of more than $460 billion) into Bitcoin, Russia completely legitimizes Bitcoin without any strings attached.
If you listen to the rhetoric coming out of Wall St. all you hear is, “well, blockchain is good, but Bitcoin is terrible.” Why would that be? Because Wall St. wants control over what form cryptocurrencies take in the global monetary system.
In their mind it has to take a form they approve of or, at the very least, can control. And they don’t control Bitcoin.
Russia looks at the situation differently. It rightly sees Wall St. and Washington D.C. as their enemies, because they are. And they know that the key to Russia’s long-term economic and financial health comes from being able to transact commerce with whomever they wish for whatever they can agree to.
There will be no negotiations with the U.S. over Russia’s future role within the current monetary system. Either Russia submits to Wall St. and Washington’s control or they will be cut out of it.
Trump is hopeless on this issue as his plan is to simply substitute physical invasion and endless occupations with financial repression and warfare.
Empire on the cheap, in other words.
For Russia, every instance of U.S. interference into their economy — sanctions, bullying, AML and KYC laws — is costly. It retards growth while they build workarounds and alternative systems.
That is part of the point of these tactics by the U.S.; to impede Russia’s growth by creating inefficiencies in its trade.
But if there is one thing that cryptocurrencies, for all of their faults, are good at it is cutting through the complexity of moving money from one place to another. Once you know how to do it, moving money with Bitcoin or any other cryptocurrency is quick.
It doesn’t matter if you are buying a candy bar or settling a couple hundred oil futures contracts, the transaction takes roughly the same amount of time.
So, once you understand that the main reason the U.S. is angry with Russia is because it has the temerity to tell the U.S., “No.” Nothing more, nothing less. Putin refused to allow Russia to be strip-mined by people like Bill Browder, who himself is nothing more than a front for the banks who stand behind our politicians.
So, in the end, is anyone surprised that Russian President Vladimir Putin has approved this move into Bitcoin? Remember, in early 2017 Putin met with Ethereum designer Vitalik Buterin who explained its potential to Putin.
And after that Putin’s hostility (or really at that point ambivalence) to cryptocurrencies faded and he was a convert as to how crypto-assets could be used to improve all facets of Russian society, especially in reforming Russia’s government bureaucracy.
But this goes far beyond just Russia’s ability to withstand U.S. sanctions. Once this fund is established Russia can stand as a node of stability for anyone wishing to do business with it and its banks who are under threat of sanctions from the U.S. for any reason.
It has been through ever-increasing bank regulations that the U.S. and Europe have enforced the status quo of the flow of capital. AML and KYC laws make every transaction a potential compliance nightmare for any European bank wishing to do business with Russia or just about anyone else the U.S. doesn’t approve of.
The potential for political retribution is very high. The prosecution of Danish bank Danske, for example, has likely had a major chilling effect on other banks doing business with Russia. And the hope there would be to make it easier for the Trump administration to stop the Nordstream 2 pipeline from getting built.
But now, the Russians can and will clear transactions outside of the banking system if need be. Will the U.S. and the EU continue to harass businesses? Of course. But it will be a whole lot harder to track transactions across the Bitcoin blockchain than it is through SWIFT and the normal banking system.
And the cost of compliance will reverse. Russia’s costs drop while the U.S.’s skyrocket.
The Russians, with this move and many others, are stating that they reject the current world banking system and the proposed solutions to the upcoming financial crisis.
They rightly understand the IMF is the preferred path by The Davos Crowd through which the next crisis is resolved. And that path is just a continuation of the path we’ve been on for decades.
Russia decided to forge its own.
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Grant Williams, SUPERB, 33 minute slide show on where the Banksters have taken us AGAIN.
Bitcoin? They must have legalized ganja in Russia. C’mon Vlad, puff puff give.
If this story is true, and I doubt it, there may be a temporary use for crypto currencies to move money outside traditional channels. In the long run, it makes no sense at all.
Like central bank monopoly currency, crypto currencies are not money. Gold and silver are money as they have intrinsic value and can’t be conjured into existence. Oil could be money. Trees could be money. Many things could be money because those things are real and have intrinsic value.
Crypto fan boys want to pretend that the electricity used to create a crypto unit are equivalent to the mining process for the metals going so far as to call their process ‘mining’. Even if that were true, and it isn’t, where is the intrinsic value in their bogus digital coin?
Crypto is the modern tulip craze. What happens when the finite number of Bitcoin units has been created? The ‘miners’ are the ones that maintain their block chain. What happens to that chain when the miners drop off the network because there’s no money left to stay on the network?
If this story is true, Russia is using this end run around sanction as a temporary measure only. When the world returns to its senses, crypto currencies as they are constituted now, will vanish. Block Chain technology could be used to replace debit cards (not credit cards) and physical paper funny money IF it represents stored gold and silver that backs it up. If anything, Russia and China are more likely to announce precious metal backing of their phony money.
I disagree that Cryptos cannot be money. They satisfy Mises’ regression theorem and you are talking to the guy who proved it in 2010 and then convinced the Austrians at LRC and the Mises Institute of this.
The fact taht encrypted internet packets have the potential for intrinsic value imparts to them implied value before creation. And therefore, once created as a consequence of Human Action (the act of mining and/or witnessing) with the expressed purpose of creating those packets, they have commodity value. And since they have no other competing use in the marketplace which could impart other characteristics to them, they exist purely as potential monetary assets.
Silver, is not money anymore. Too many industrial uses competing for its supply. Oil is absolutely not money, it is the opposite of money.
Gold is still potentially money but its inability to be divided to adequately express comparisons within the division of labor is its short-coming.
Oddly enough, crypto is a means by which to truly remonetize gold. But, you are still introducing the counter-party risk of storage and the concentration of capital at said storage sites.
The story likely has some truth to it, but the numbers are likely off and the person who stated this was promoted for political purposes. There is a lot of smoke vis a vis Russia and Crypto. Don’t discount that or crypto itself.
Too many gold enthusiasts let their frustration and jealousy of crypto get in the way of their analysis of it. Call it a ponzi scheme or tulip mania at your own peril
Tom, when you posted regarding this “Putin is going to by 10 BILLION dollars of Bitcoin” I wondered what the f*ck were you thinking? The headline screamed “Fake News” (at least to me) and at the very least required some journalistic fact checking lasting longer than 2 minutes on a google search.
But there is an “I want to believe” crowd (not only in bitcoin) that suffer from confirmation bias wish in their scanning of “news”. You have a bias towards crypto based on your political foundation. That’s fine but in this case you got suckered by a “fake news” headline. Get over it and move on.
My view on bitcoin is that it may (quantum computing may technologically leap frog it) be useful in a transactional sense but as a store of value, I have strong douts.
It happens. I wouldn’t be surprised at all for the Russians to do this in the end… it makes too much sense especially if they reject the IMF’s plans for a world reserve currency.
So, yes, you’re right, I should have looked before leaping… but the thesis is still, I think correct.
I applaud Russia for implementing this strategy, if they follow through. It’s like raising a giant middle finger in the direction of the United States and their apparatchiks (the IMF). And if I were in Vlad Putin’s shoes, I would do exactly what was discussed in this post.
Say goodbye to the Know Your Customer rules, a real destruction of freedom worldwide.
This is the best news I’ve heard since…the thought that the United States might really pull out of Syria.
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