Good morning. Here’s what’s happening:
Markets: Bitcoin, ether and other major cryptos rise, even as the U.S. looked to hamstring Russian from using crypto to evade sanctions.
Insights: CBDCs won't help Russia evade economic sanctions.
Technician's take: BTC's 11% price jump reflects short-term bullish activity, although upside appears limited.
Bitcoin (BTC): $43,040 +14.9%
Ether (ETH): $2,902 +12.1%
Bitcoin soared more than 15% at one point, even as Russia escalated its war against Ukraine, pounding the country's capital Kyiv and its second-largest city, Kharkiv, with rocket fire. The gain was bitcoin's largest single-day increase in a year. Ether rose over 12% and other major cryptos were firmly in the green.
Observers of the conflict initiated by Russian President Vladimir Putin fear the nearly 200,000-strong invading force that was bloodied by surprisingly strong Ukraine resistance last week will resort to more brutal tactics. Russia and Ukraine delegations adjourned their initial peace talks on the Belarus border without resolution to report back to their governments as European and U.S. sanctions began to bite into the Russian economy.
Earlier in the day, Ukraine Vice Prime Minister and Minister of Digital Transformation Mykhailo Fedorov asked "all major crypto exchanges to block addresses of Russian users." Europe and the U.S. have banned certain Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the messaging network supporting global financial transactions. The move has blocked these institutions from conducting any interbank transactions with non-Russian entities. Russia has viewed crypto as a way to circumvent this sanction and others meant to isolate them from the global financial system.
Oanda Americas Senior Market Analyst Edward Moya wrote in an email that investors on Monday viewed the move and counter-move as "bolstering the argument for blockchain products that will compete with the SWIFT network. Bitcoin and all the top altcoins are rallying today as investors realize the likelihood of massive investments into [decentralized finance] following the latest round of Russian sanctions."
At the time of publication, bitcoin, the largest cryptocurrency by market capitalization, was trading at just above $43,000, its highest level since mid-February. Ether, the second-largest crypto by market cap, was trading at about $2,900 and following a similar pattern.
In a phone interview with CoinDesk, Moya added: "No one is saying DeFi hasn't been around for a while. This might help accelerate more people focusing on it. Whenever there's a significant military conflict historically it's a risk-off opportunity. Investors are asking 'where else can I put my money.' This is looking like one those smart bets. This (DeFi) could take off faster than expected."
S&P 500: 4,373 -0.2%
DJIA: 33,892 -0.4%
Nasdaq: 13,751 +0.4%
Gold: $1,909 +1.1%
CBDCs will not help Russia evade sanctions
The headlines came fast and furiously Monday as sanctions placed on Russia by Western powers started to bite the country’s economy hard.
Predictably this also led to many hot takes on how this was the first sign of U.S. dollar hegemony cracking with central bank digital currencies (CBDC) being used to break the sanctions blockade.
Some observers of the Russian invasion predicted the rise of the petroyuan as an alternative currency for crude oil transactions. They see Russia transacting in renminbi to avoid sanctions.
Problem: The yuan isn’t freely convertible. China's central bank maintains strict capital controls over the currency capping overseas transfers at the equivalent of $50,000 per annum. The strictness of compliance checks has only increased since former U.S. President Donald Trump’s trade war put a chill on China’s economy.
And it’s not that the People’s Bank of China wants the yuan to be freely convertible anyway. China’s currency trades within a controlled band, which its extensive foreign reserves support, making banks assume more reserves to cool a rallying yuan, or burn through them to support the band when times are tough. (Taiwan does something similar, but is sneakier about it.)
So a rapidly internationalizing yuan is something that China doesn’t want, politically. While Beijing might begin to discuss loosening control of the currency in the future, the yuan isn’t set up for complete liberalization of the capital account.
The policy behind the digital yuan (eCNY) reflects as much.
“The internationalization of a currency is a natural result of market selection. The international status of a country’s currency depends on its economic fundamentals and the depth, efficiency, and openness of its financial markets,” reads the project’s white paper.
The U.S. dollar isn’t under threat because there isn’t a versatile alternative that has its liquidity. Other nations also don’t want their currencies to be internationalized because their economies aren’t big enough to support such a move, and these nations do not want to cede control to outsiders.
In a post Sunday, Bloomberg columnist Andy Mukherjee theorizes how the eCNY could be used to help Russia break through sanctions and dislodge the dollar, suggesting the eCNY could be traded for stablecoins.
Yet, such a scenario wouldn’t work because the People's Bank of China (PBoC) has not indicated that it would allow the eCNY to exist offshore. But the proposal is also amusing because it replicates something that already exists: the digital currency used for international transactions including between Russia and China, isn’t the yuan but dollar-denominated stablecoins.
As it's been said before, the best thing for continued dollar hegemony is crypto. There isn’t a viable alternative, which makes it an effective weapon for sanctions.
Bitcoin (BTC) broke above the $40,000 price level on intraday charts, indicating short-term bullish activity. The cryptocurrency was up about 11% over the past 24 hours, although immediate resistance around current levels could stall the upswing.
For now, BTC will need to remain above the 100-day moving average on the four-hour chart, currently near $40,000, to confirm upside targets. Lower support is seen at $37,000, which could stabilize pullbacks into the Asia trading day.
8:30 a.m. HKT/SGT (12:30 a.m. UTC): Jibon Bank (Japan) purchasing managers index (Feb.)
8:30 a.m. HKT/SGT (12:30 a.m. UTC): Australia current account balance (Q4)
9 a.m. HKT/SGT (1 a.m. UTC): China NBS manufacturing purchasing managers index (Feb.)
9:45 a.m. HKT/SGT (1:45 a.m. UTC): China Caixin manufacturing purchasing managers index (Feb.)
11:30 a.m. HKT/SGT (3:30 a.m. UTC): Reserve Bank of Australia decision on interest rates
"First Mover" had the latest as the Russia-Ukraine crisis tests the role of cryptocurrencies in war and sanctions. Christine Lee and Lawrence Lewitinn sat down with experts to examine various ways cryptocurrencies are being used, and the implications. The guests were Liat Shetret of Solidus Labs, a market surveillance and risk monitoring hub; UkraineDAO founder Alona Shevchenko; and Kapil Rathi, CrossTower co-founder and CEO.
US Shutters Embassy in Belarus Amid Russia-Ukraine Peace Talks: As with mainstream financial markets, cryptocurrency has felt the ripples of the hostilities in Eastern Europe.
Crypto Funds See Inflows Globally Despite Exodus From European Products: A net $36 million went into digital-asset funds last week with major outflows in Europe but large inflows in the Americas.
Ruble-Denominated Bitcoin Volume Surges to 9-Month High: The increase comes as the West's sanctions on Russia trigger a flight from the ruble.
Ukraine Government Is Using Crypto Aid to Purchase Critical Supplies: Around $10 million in crypto donations sent to the Ukrainian government has already been spent.
'Will ETH Survive?': Why Ethereum's Leaders Forked the Network in 2016: An excerpt from podcaster Laura Shin's new book, "The Cryptopians."
Today's crypto explainer: The 7 Types of Crypto Tax Nightmares
Other voices: Russian Bitcoin and Other Cryptocurrencies Could Be Part of Future Sanctions (The Wall Street Journal)
Said and heard
"He’s a small man of five-six saying he’s five-seven.” (Russia expert and New School Professor Nina Khrushcheva on Vladimir Putin during a Vanity Fair podcast) ... "Apes aside, the question remains: Why crypto? It’s not as if there aren’t other ways to donate – the Ukraine Twitter account posted information about direct money transfers with fiat currency, and Come Back Alive accepts contributions via the Swift-linked international banking system." (CoinDesk columnist Will Gottsegen) ... If it were cut off, Russia could also transfer some international financial activity to crypto networks. According to Banco Santander, Russia’s import/export flows total around $570 billion annually, a volume that could be accommodated with relative ease on the Bitcoin network. According to CoinDesk data, Bitcoin processes $20 billion in on-chain transactions per day, or more than $7 trillion per year. (CoinDesk columnist David Z. Morris) ... "The Bank of Russia took a raft of measures early Monday to protect Russia’s banking system. It raised benchmark rates to 20% from 9.5% in an attempt to attract savings into banks, the largest of which were targeted by Western sanctions and will be all but cut off from international markets." (The Wall Street Journal) ... "Russia’s financial system was under siege Monday, but the country is still pumping and exporting vast amounts of oil and natural gas to the rest of the world, delivering cash in the face of Western sanctions and a financial cushion for President Vladimir Putin. At the heart of it lie two London-listed energy giants. Gas exporter Gazprom PJSC and oil company Rosneft PJSC fund a large chunk of the Russian state and are among the country’s largest employers. Neither have been targeted by major Western sanctions, a sign of their importance in the global energy markets." (The Wall Street Journal)
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