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Russia Is Playing Geopolitical Chess
To investors, There have been a plethora of rumors about bitcoin and cryptocurrencies in Russia over the last few months. The country sits in a unique geopolitical position — they are frienemies of the United States and have a deepening relationship with China, another frienemy of the western superpower. As a refresher, the mainstream media has been pushing the narrative of a pending Russian invasion of Ukraine. The response by the United States in an attempt to deter the invasion is financial sanctions, including potentially the exclusion of Russia from the SWIFT payment system. It is important to caveat that no one actually knows what is going on between Russia and Ukraine. Americans have nearly zero appetite for another invasion or war. The average citizen couldn’t even point Ukraine out on a map, while they have little concern about their safety due to actions that Russia may or may not take halfway around the world. That doesn’t mean that the United States shouldn’t be paying attention, but there are major questions about the narrative being pushed by the mainstream media. Additionally, the threats of financial sanctions on a large country like Russia are noteworthy. More than a decade ago, these sanctions carried significant weight. The United States could cut you off from the global financial system and essentially sentence you to financial system purgatory. These sanctions are likely to be less effective in the current time period though. Let me give you two examples — China and bitcoin. Chinese President Xi Jinping hadn’t met with a foreign leader in person since the start of the global pandemic in 2020 until he recently sat down face-to-face with Russian President Vladimir Putin a few days ago. The two countries issued a 5,000+ word joint statement following that meeting. Here is the opening paragraph: “Today, the world is going through momentous changes, and humanity is entering a new era of rapid development and profound transformation. It sees the development of such processes and phenomena as multipolarity, economic globalization, the advent of information society, cultural diversity, transformation of the global governance architecture and world order; there is increasing interrelation and interdependence between the States; a trend has emerged towards redistribution of power in the world; and the international community is showing a growing demand for the leadership aiming at peaceful and gradual development. At the same time, as the pandemic of the new coronavirus infection continues, the international and regional security situation is complicating and the number of global challenges and threats is growing from day to day. Some actors representing but the minority on the international scale continue to advocate unilateral approaches to addressing international issues and resort to force; they interfere in the internal affairs of other states, infringing their legitimate rights and interests, and incite contradictions, differences and confrontation, thus hampering the development and progress of mankind, against the opposition from the international community.” This new interest in collaboration between Russia and China creates the potential for bi-lateral trade to be settled outside the US dollar regime. Obviously, if these countries begin to conduct trade without using the global reserve currency, the sanctions from the issuer of that global reserve currency will be significantly less effective. It is unclear how much of this is tough talk compared to committed action, but it is an important development. Second, the rise of bitcoin and cryptocurrencies provides an open, decentralized payment system that is not controlled by anyone. This may seem like a wild idea theoretically, but we are watching bitcoin gain adoption globally at an insane pace. It is important to highlight that sanctions is just another name for censorship. The creator and distributor of the global reserve currency is attempting to censor who uses their currency and payment system. There may be good reason for the censorship. There may not be. Either way, sanctions are just a different terminology for censorship. Bitcoin is censorship-resistent money. No one can shut down the system. No one controls it. Anyone in the world can send monetary value to anyone else in the world. There are no middlemen. There are no rent seekers. The peer-to-peer system is unique in design and powerful in application. So it is weird that the central bank of Russia started to question bitcoin’s relevance in the country at the same time that it may become incredibly important to the nation state. To explain further, the Bank of Russia recently floated the idea of banning bitcoin and cryptocurrencies within the country. This led to a heated debate internally and externally of the country. Last night, it appears that the Russian government and the central bank reached an agreement on digital assets. They will not be banning them, but rather treating them like other foreign currencies. There are other aspects to the agreement (read statement here), such as regulatory frameworks, proper licensing for crypto exchanges, increased taxation, submission of various information to a state-run surveillance tool, and more. Ultimately, the important takeaway is that Russia is not going to ban bitcoin or crypto assets, but rather they are going to increase the usage and adoption within the country by creating frameworks and rules that everyone understands. Many people may not know this, but Russia is already one of the largest crypto countries. They are the third largest country in terms of bitcoin’s hash rate, there are more than 12 million crypto accounts held by Russian citizens, and it is estimated that those people hold more than $26 billion worth of cryptocurrencies. Not exactly something that is easy to ignore for the government or central bank. So let’s take this one step further. If Russia becomes sympathetic to the bitcoin and crypto industry, including putting the digital currency on their balance sheet or mining with state resources, it will force the hand of the United States. There is a global competition underway that has a decentralized, open system at the heart of it. Anyone can plug into the system. The game theory is that no one wants to start the cascade, but once your adversary does it, you are forced to adopt the technology or risk being left behind. El Salvador was a great first step. The smaller country doesn’t have any enemies though. The largest superpowers could simply ignore the strategic move and carry on with normal operations. If Russia was to make a move on the chess board, it would be impossible for global superpowers to look the other way. Eventually every country is going to adopt bitcoin and the open payment system. The question is not whether it will happen, but rather the sequence of events that will play out. As with most innovative technology, those who have courage and conviction to invest earliest are rewarded with the largest benefit. This situation is no different. Russia’s decision to treat bitcoin and crypto as currencies is a step down this path. It will be interesting to see how far, and how quickly, they go. The United States can’t afford to fall behind. We must be the leader on the global stage. We must act. The stakes are too high. Hope you have a great day. I’ll talk to everyone tomorrow. -Pomp SPONSORED: Mode allows you to buy, earn and grow Bitcoin, all in one app. Pay with Mode & receive up to 10% Bitcoin Cashback from its growing list of online partner brands directly into your Mode wallet.Mode, the UK fintech app is one of a kind.
THE RUNDOWN: Infinity Ventures Crypto Closes $70M Fund: Infinity Ventures Crypto, a Taipei-based Web 3 investor, said it raised $70 million to deploy to startups in Asia and the Americas in its first fund, which closed today. The fund’s strength is bridging the gap between the east, particularly southeast Asia, and the west, partner Brian Lu said in an interview with CoinDesk. Read more. US Officials Seize $3.6B in Bitcoin From 2016 Bitfinex Hack: Federal officials seized some $3.6 billion worth of bitcoin tied to the 2016 hack of the crypto exchange Bitfinex. Agents arrested two individuals in New York on Tuesday on charges they conspired to launder proceeds from the Bitfinex hack in 2016. The married couple, Ilya "Dutch" Lichtenstein and Heather Morgan, will appear in court at 3:00 p.m. ET in New York, according to a U.S. Department of Justice press release. Read more. Judge Stays Release of Bitfinex Hack Laundering Suspects: A federal judge has halted the release of two individuals suspected of laundering proceeds from the 2016 Bitfinex hack. Chief Judge Beryl Howell, of the U.S. District Court for Washington, D.C., stayed an earlier order by a New York Magistrate Judge to release Ilya "Dutch" Lichtenstein and Heather Morgan on bail. The two were arrested Tuesday by federal officials on charges stemming from a 2016 hack of the Bitfinex cryptocurrency exchange. The U.S. Department of Justice also said officials seized 94,000 BTC, worth over $3.5 billion at today's prices. Read more. Coinbase Files to Form a PAC Ahead of 2022 Midterms: Coinbase is backing a political action committee (PAC) this election cycle. On Monday, the publicly traded crypto firm registered “Coinbase Innovation PAC” with the Federal Election Commission, sending a strong signal of its desire to sway federal officials during the 2022 midterm election cycle. The crypto exchange is hardly alone: Industry heavyweights formed their own pro-crypto PAC late last month. Read more. LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE Dylan LeClair is the Senior Market Analyst at UTXO Management, a digital asset fund investing in the analog to digital transformation of money and the emergent financial system. In this conversation, we discuss Bitcoin, on-chain metrics, market structure, and what to expect from the rest of the bitcoin bull market. LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE Podcast SponsorsThese companies make the podcast possible, so go check them out and thank them for their support! Bitcoin 2022 is the largest Bitcoin event in the world that takes place 4/6 - 4/9 in Miami Beach. ClickHERE to learn more and use promo code POMP for 10% off. Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. Mode allows you to buy, earn and grow Bitcoin, all in one app. Download Mode on the App Store and Google Play. Only available in the UK. Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domainhere today. Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today. Abra is an all-in-one secure app that allows you to trade over 110 cryptocurrencies. Download Abra today and get $15 in free crypto once you fund your account. FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today. Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today! Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp BlockFi provides financial products for crypto investors. To start earning today visit: http://www.blockfi.com/Pomp Circle Yield offers qualified businesses superior returns on USDC holdings for terms of up to 12 months. Visit circle.com/pomp today; terms apply. LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today. You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.
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