Russian President Vladimir Putin has decided to limit the amount of money that Russian citizens and companies can convert out of the rapidly-declining Russian Ruble — a strategy which looks like Putin is locking himself, and his country’s citizens, in a burning room.
In this case, the ‘room’ represents the bounds of the Russian economy, which has been sanctioned into oblivion. The ‘fire’ would be the rapid decay of value in the country, which has seen the Ruble fall by over 31% YTD. And, finally, the ‘lock on the door’ is a desperate gamble that Putin will be able to successfully wage an armed conflict and a war of economic independence from the West.
If you ask investors, that’s fairly unlikely to happen. Russians are running to the relative safety of cryptocurrencies. This is because other currencies, especially western ones, aren’t safe for Russia since they could get frozen through western sanctions.
The value of major cryptos has soared, providing some validation to the argument that cryptos could become risk assets in times of geopolitical turbulence. In fact, cryptos are trading more like alternatives than equities and bonds during the Ukraine crisis. 💡
Today alone, the global crypto market cap inched closer to the $2 trillion mark, rising 4.1%. The world’s largest crypto, $BTC.X, has risen +15.5% in the last seven days. It was also joined by $ETH.X (+13%), $LUNA.X (+68%), $AVAX.X (+18%), and others.
Cryptocurrencies are highly regulated in Russia. However, Ruble-denominated pairs have seen record-setting trading volumes according to The Block and Forkast. This boost in trading volume is due to some exchanges following sanction guidance to suspend Russian accounts in an effort to prevent wealthy individuals, like Russian oligarchs, from running and hiding.
Unfortunately, the entire class of citizens in Russia is seeing their wealth rapidly deteriorate. The country’s stock market was closed for a second consecutive day, but one U.S-based Russia ETF has fallen more than 69% YTD. That loss, paired with the near-collapse of the Ruble, means millions of Russians will suffer because of military action they did not want to be involved in.
For this reason, many are willing to risk moving their wealth into crypto, where it will likely settle into U.S-denominated stablecoins such as the $USDT, $UST, or $DAI. Many of these could avoid Western demands to freeze funds or accounts. Individuals who have no access to such stablecoins will probably buy Bitcoin, Ethereum, and others.
Despite the optimistic surge in crypto prices, we want to emphasize that this is a particularly sad situation — the promise of decentralized, borderless money might prove a valuable use-case for people in battered nations (as it has historically.) 🙏 However, given the controversial role of crypto in this Russia conflict, it is possible that these inflows will be politicized.