Russia May Accept Bitcoin for Oil
Ukraine Demonstrates Crypto’s Utility
While regulators keep trying to smear bitcoin, the clear use case of having a decentralized digital money that doesn’t need any middleman is clearer than ever. It seems the corporate media isn’t missing it either. CNBC recently interviewed some Ukrainians and explored how crypto has been a lifeline for many people there.
One Ukrainian refugee, using the moniker “Fadey”, told CNBC that he and his girlfriend made a safe escape into Poland thanks to his cryptocurrency holdings. He woke up the day the war began to a slew news telling him that his country was under attack, and quickly decided to leave. They were about to lock down the borders, so time was of the essence. But millions of Ukrainian citizens had the same idea, and all had to withdraw their savings from their bank accounts before they could go.
Fadey said:
“I couldn’t withdraw cash at all, because the queues to ATMs were so long, and I couldn’t wait that much time.”
With the click of a few buttons he went on a p2p exchange and traded $600 of his Bitcoin for 2,575.22 Poland złoty (the official Polish currency). He used this to pay for a bus across the border, a bed in a hostel for him and his girlfriend, and some food. He then transferred some bitcoin savings ($2000 worth) onto a secure thumb drive, and safely made it out of Ukraine, just two hours before the borders closed to any man aged 18-60.
Crypto critics like to argue that cryptocurrency has no function, no usefulness, but it is proving to be a literal life-saver for so many people who have been cut off from their fiat bank accounts.
Indeed for several weeks leading up to the invasion it was difficult to pull money out of Ukrainian banks, but then when once it started the Ukrainian central bank suspended electronic cash transfers, and ATMs started to run out of cash.
So we’ve learnt several things from what has happened in Ukraine:
Giving someone else control over your money is problematic, because a crisis can hit suddenly and you can lose access to everything you have. Keeping control over your own money can mean the difference between life and death for some people.
Holding your net worth in an asset that is stored in a password can be very powerful, especially when mobility is essential. Traveling with money that is protected by a password is also safer than traveling with cash, which can be stolen more easily.
Money that is valid across borders is very useful.
Digital money that can be used without a passport and without a bank is a powerful tool.
Ukraine was already at the forefront of crypto adoption for the past several years. Here is a video I made 4 years ago (2017) in Kyiv, exploring cryptocurrency usage in the country.
Russia May Accept Bitcoin for Oil
Russia is currently considering accepting currencies other than USD for their natural resources, in light of sanctions against the country for their invasion of Ukraine.
Pavel Zavalny, who is the Chairman of the Energy Committee of the State Duma, said during a press conference:
“If they want to buy, let them pay either in hard currency, and this is gold for us, or pay as it is convenient for us, this is the national currency. As for friendly countries, China or Turkey, which are not involved in the sanctions pressure. We have been proposing to China for a long time to switch to settlements in national currencies for rubles and yuan. With Turkey, it will be lira and rubles. The set of currencies can be different and this is normal practice. You can also trade bitcoins.”
Why has USD been a predominant currency for trade and reserves?
USD has been the primary reserve currency of the world since 1944. During WWII the US was the main supplier of weapons, which the Allies paid for in gold. This made the US the owner of the majority of the world’s gold. After the war, with global gold reserves depleted, a return to a gold standard wasn’t possible, so the world’s currencies were pegged to USD rather than gold, and the US maintained a gold standard (in what’s known as the “Bretton Woods” agreement).
This agreement fell apart in the early 70s, but USD still maintained its primary reserve status largely through the petrodollar system.
Petrodollar and USD predominance in oil trade
After Bretton Woods collapsed, the US made agreements with Saudi Arabia (which also influenced the decisions of OPEC, a powerful cartel that sets the price of oil for the world market and manages supply) to standardize oil sales in USD. In return, they were offered US influence and military assistance. The petrodollar was created, defined as dollars paid to oil-producers for oil, which provided US financial markets with liquidity and an inflow of foreign capital.
Today USD makes up just under 60% of all known central bank foreign exchange reserves, but that predominance has been on a downward trend.
Russia’s Dedollarization
Russia has been slowly extricating itself from dollars since 2014 when sanctions were initially placed on them due to the Crimea conflict. Then in 2018, as sanctions worsened, Russia began to expedite the withdrawal of its reserves out of US government bonds. Other countries such as China, Turkey, Iran, India and Brazil, also started to make similar moves.
In 2015 the share of trade between Russia and China using USD was around 90%. In 2019 they signed a treaty to use national currencies in mutual trading, and by 2020, the use of USD in Russia-China trade had fallen to 46%.
USD predominance as a global reserve currency is declining. Further, countries monitor US monetary policy to make sure that their reserves are not devalued due to inflation, and there’s concern that 7.9% inflation over the past year in the US is resulting in a loss of confidence in USD.
Zavalny said in the press conference:
“The question arises, why should we trade for this currency? In fact, then this currency turns into candy wrappers for us. And we must supply real material resources, while not being able to get paid for them.”
What now?
USD was surprisingly resilient to inflation during the TARP bailouts and quantitative easing after the ‘08 crisis, but part of the reason is that the demand for USD was still very high due to the fact that so much international trade, including oil trade, was conducted in USD.
Given that many countries have been slowly moving away from USD usage, the extremely high level of money printing currently taking place may have more severe impacts than expected.
There’s also a big question about which currencies people will choose to use going forward, especially because we now have a decentralized alternative to the US dollar — An internationally-accepted money that is not controlled by any government. How this factors into global economic and political decisions over the next decade will be interesting to watch unfold.
We discuss this on our most recent episode of Cryptobeat live!
“Can I Have That In Bitcoin Cash, Please?”
St. Maarten parliament member and leader of the United People’s Party, Rolando Brison, has opted to have his entire salary paid in Bitcoin Cash, and is the first elected official to do so. In an announcement on Saturday, the representative said:
“I believe St. Maarten has a chance to be the ‘Crypto Capital of the Caribbean’ if we continue to innovate and embrace cryptocurrency and all the benefits of blockchain technology.”
Brison said in his announcement that the next step for St. Maarten is to introduce legislation for cryptocurrencies and blockchain technology.
“The concept of ‘Money’ has been experiencing and will continue to experience a wave of innovation. … This innovation comes as we as a country and as Parliamentarians are faced with more questions on how to adapt our local currency and (E)commerce for a digital world. Fortunately, the answer lies right in front of us – Bitcoin Cash.”
Brison is exploring legislation to make bitcoin cash legal tender in St. Maarten, and also aims to get BCH and non-fungible tokens (NFT) exempt from St. Maarten’s capital gains tax.
Crypto adoption in St. Maarten and St. Kitts has been tremendous, with hundreds of merchants that accept payment in cryptocurrency. Let’s hope this is a trend that we see continue across the globe.
That’s Our Jerome
Federal Reserve Chairman, Jerome Powell, attended a panel discussion Wednesday where he voiced his belief that crypto should be regulated. The discussion on digital currencies was organized by the Bank for International Settlements and gave Powell opportunities to play all his favorite hits, such as:
“crypto is destabilizing financial institutions”,
“crypto is used for money laundering”, and
“crypto lacks government protections”.
He insisted that new regulation is necessary if crypto is to fit into the American economy safely:
“Our existing regulatory frameworks were not built with a digital world in mind … Stablecoins, central bank digital currencies, and digital finance more generally, will require changes to existing laws and regulation or even entirely new rules and frameworks.”
He reiterated that crypto ought to follow the “same activity, same regulation” as standard bank deposits or money market funds, and that crypto has “been used to facilitate illicit activity,” such as money laundering:
“We need to prevent this so that the innovations that do survive and do attract broad adoption are those that provide value over time.”
It turns out that illicit activity is already… illicit. One wonders why further regulation is needed, or whether it will just further government financial overreach.
NY Bitcoin Mining Ban Moves Forward
The NY State Assembly voted Tuesday to advance legislation that would put a two-year moratorium on Proof of Work (PoW) bitcoin mining. New York State’s Climate Leadership and Community Protection Act mandates that New York's greenhouse gas emissions be cut by 85% by 2050, and the bill put together by the Environmental Conservation Committee uses this language as justification to ban PoW.
To refresh: Proof-of-work mining is where computers are essentially competing to guess random numbers, and if they’re the first to guess the right ones then they win a block reward and the ability to write a block. Because it’s a competition, the more powerful your machine, the more chance you have of winning the block reward. As such, these operations are often cited as consuming massive amounts of energy, and they usually take place in enormous mining facilities. Nic Carter, partner at Castle Island Ventures, has written some great articles about the bitcoin energy debate:
“Bitcoiners are rightfully frustrated at having to defend Bitcoin’s share of global energy production, given the lack of equivalent scrutiny applied to other apparently wasteful applications which consume similar amounts of energy. … The question ultimately boils down … [to] the societal merit of non-state money.”
A similar policy was recently put forward in the EU, but was squashed due to a huge amount of pushback against the PoW ban.
The new legislation still needs to get through the rest of the New York State Assembly and the NY Senate before being signed into law by the governor. It wouldn’t be the first abhorrent crypto regulation to be passed in NY (Search: Bitlicense, or “The Great Bitcoin Exodus of 2015). If the EU were able to defeat it, let’s hope NY can also.
By Will Sandoval, NBTV Associate Producer, and Naomi Brockwell.