Crypto in the Context of Russia and Ukraine

Jun 2, 2022

What is your main takeaway on crypto’s role in the Russia-Ukraine war?

I think there’s been a big awakening. I think February 26, 2022, will go down in history as effectively the end of what we call the “Bretton Woods era,” as we began the process of canceling the Russian economy.

The United States and Russia have created a scenario where many countries will now be forced to reconsider their U.S. dollar or U.S. Treasury holdings. The reason: Russia has over $600 billion in U.S. dollar-based reserves in different countries, of which half, I believe, is now inaccessible to the Russian government or Russian Central Bank. That is an astounding development.

At the same time, Russia was effectively removed from SWIFT. The idea that you could block an entire country from that system is unheralded. When you shut a country off from what is effectively the backbone of global capitalism, you've created a problem for that country. This is where decentralization technology is likely to be the big winner.

So will crypto, and specifically bitcoin, become a reserve asset?

I think gold becomes the reserve asset of choice versus dollars in the short term. But how do you hold it? How do you move it at a global scale? Bitcoin is easy to move in real time from place to place, either on a large scale, on the layer 1 Bitcoin blockchain, or on a small scale with layer 2 technologies like Lightning. As more and more gold holders realize that bitcoin is an easier form of gold to hold, managing its position as a viable alternative will become viable. As the price of bitcoin goes up due to continued strong network effects, its status as a gold alternative will be solidified. As a result, I think bitcoin becomes a key global reserve asset in the long term (10 to 15 years).

Do you think we could move to a bitcoin standard?

Again, I think the short-term winner is gold. I think dollars, yuan, rubles, euros and even yen, to some degree, will compete for different types of transactions. And I think ethereum will play a role in using private stablecoins for the most part – with the exception of China – as a means for transacting in those ephemeral currencies. The dollar will remain the reserve asset for most countries over the next five to 10 years.

I think the bond market is in big trouble in the U.S. At first, gold is the big winner. We start to see private stablecoins being used for international settlement, with competition amongst those top five currencies. In the mid-term, bitcoin likely skyrockets in price and takes over a big part of gold's use case as the reserve asset for nation-states and big companies.

Ukraine has received millions of dollars in bitcoin donations. If it was Canada, it would have been seized. What does this tell us about central financial authorities and their hypocrisy?

We've had this bifurcated concept now in the West, where we live in a democracy, but when it comes to the financialization of our world and how we police that, we've given totalitarian powers to the treasury departments. In Canada, they can unilaterally sanction donations from the U.S. coming into a group of truckers that they don't support – again, with no action from Congress and no due process. The U.S. Treasury Department has been in the business of unilaterally sanctioning foreign governments and individuals for decades.

Eventually, people and governments will begin to question the viability of U.S. dollars and Treasurys as reserve assets and ask whether transfers in U.S. dollars via SWIFT or an equivalent is the way they should transact when the financial system could be used against them.

I believe [this ongoing usurping of centralized financial power] is untenable. It also leads us to a discussion around fungibility and privacy coins as an insurance policy against totalitarian governments or totalitarian decisions.

When it comes to unilaterally created sanctions, we should not be shocked when the targets turn to decentralized systems designed to be trustless with no intermediaries to evade those sanctions. Bitcoin can, of course, [play a role in circumventing] sanctions when it's used in a permissionless peer-to-peer model. Bitcoin is just software. It doesn’t care about sanctions or governments. It just runs. That's what it's designed to do.

Will this enormous display of centralized financial power that has been deployed advance the cause of decentralized finance?

In the short term, decentralization is manifesting itself as bitcoin and ethereum for the most part: bitcoin as the future of money and ethereum as the future of banking and decentralized computing.

Ethereum is going to skyrocket on the premise of becoming a decentralized financial stack. This manifests itself in the form of NFTs, DeFi, staking and other services. That’s my three-to-five-year premise. Bitcoin, I think, will continue to go up, although not as fast as Ethereum in that time frame.

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