The past week has been a dramatic showcase of the value of an uncensorable global payment, settlement and value-storage network. In Canada, a liberal-democratic government led by Prime Minister Justin Trudeau has frozen its own citizens’ bank accounts to break up an unpopular and damaging blockade – which participants argue is nonetheless legitimate political activism. Yesterday, the U.S. and Europe announced new financial sanctions on a handful of wealthy Russians, who as a group hold a huge portion of their wealth outside Russia, where it is vulnerable to seizure.
Yet even as the world pumps out unintentional advertisements for bitcoin, the bombproof orange coin has been bleeding, dropping more than 12% against the dollar over the past seven days. Why?
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At the highest level, immediate financial headwinds are simply offsetting the longer-term benefit of these object lessons in crypto’s usefulness. An imminent rise in U.S. interest rates could suck air out of speculative assets. The U.S. tax season is also just around the corner, and there are signs that frantic 2021 crypto day traders are waking up to huge tax bills and may be liquidating assets to pay them.
Bitcoin is also still undergoing a slow reversion to the mean after peaking at $68,000 in early November. Essentially, financial gravity is drawing down a dramatic speculative bull run – bitcon reached $36,000 for the first time ever just over one year ago. Meanwhile, though rising inflation is also a theoretical case for bitcoin, that thesis has yet to prove itself in practice.
While the current balance of forces might be just slightly net negative for bitcoin prices, the moment should be viewed in the broader context of crypto adoption and educational cycles. The increasing visibility of financial censorship is earning some unexpected crypto converts, and even if they’re not putting their life savings in bitcoin right away, that bodes very well for BTC longer term.
Recent developments follow a series of prominent exercises of top-down financial control, mostly courtesy of America. Last summer, in what could be plausibly characterized as a crime against humanity, the U.S. simply seized $9.5 billion in Afghani national reserves, setting the stage for the current immiseration, and imminent mass starvation, in that country. Also last summer, the U.S. Treasury department lobbied for new mass surveillance of Americans’ bank accounts, suggesting just how far authorities would like to push their financial power.
But for many, the moves by Canada have been a game-changing catalyst. One emblematic turnaround has come from Ruby on Rails creator David Heinemeier Hansson. Hansson, who has a huge social media footprint, has opposed cryptocurrency on multiple grounds for years. But on Monday, he published a full-throated mea culpa titled simply “I was wrong – we need crypto,” focused largely on his shock at Canada’s actions against protesting truckers.
Regardless, Canada’s willingness to go fully mask-off has helped reinforce and spread bitcoin’s most important value proposition. Slightly more puzzling is the fact that new sanctions against Russian billionaires, issued yesterday in response to Russia’s invasion of Ukraine, haven’t triggered a meaningful rush into crypto. Russia’s notorious “oligarchs” hold much of their wealth, largely embezzled from the Russian people with help from Russian President Vladimir Putin, in foreign banks.
They may in fact be converting wealth into less easily seized bitcoin in amounts too small to affect the market (Russia’s entire economy is only roughly the size of Texas’). They may be avoiding bitcoin because they see its downward price trend as a bigger risk than bank seizures (gold prices, by contrast, are peaking). They may be betting on Europe’s dependence on Russian oil to protect most of their assets. Or they may be betting that influential Western billionaires will discourage their governments from setting an uncomfortable precedent by seizing rich people’s ill-gotten wealth.
But the larger lesson is, again, undoubtedly being learned. Whether it comes to internal political conflicts or international aggression, mainstream, SWIFT-based banking has become a political weapon of convenience. It’s clear who controls that weapon – and now that the Rubicon has been crossed, there’s no turning back.