GB Market Commentary 01/03/2022
by Marcus Sotiriou
Bitcoin rallied by an incredible 17% yesterday, on a day that the S&P 500 was down by 0.25%. We have seen crypto be correlated closely to the US stock market for months, but Bitcoin is showing signs of decoupling from this correlation in the short term. Bitcoin is being heavily bid due In part to the narrative of being a permissionless and censorship-resistant way of transferring value, as it has been used during the crisis in Ukraine as well as political unrest in Canada. It is also fascinating that, after a week into geopolitical uncertainty, Bitcoin is outperforming Gold, which is known as a safe-haven asset.
Will Russia use cryptocurrency as an alternative payment method to evade US sanctions?
After the US Treasury Department claimed that it was limiting Russia’s ability to use their $630 billion in foreign reserves, many have talked about the potential for Russia to evade these sanctions by using cryptocurrency.
I am sceptical about the feasibility of this though. Despite Iran and North Korea having used cryptocurrencies to get around US sanctions, Russia’s case is unique. This is because there is not enough global liquidity to support the $50 billion in foreign exchange transaction volume that Russia settles daily - Bitcoin’s daily volume is typically around $20-50 billion.
In addition, Russia is unable to use crypto to replace the hundreds of billions of dollars that will potentially be frozen due to the traceability of blockchain technology. On a blockchain ledger, every transaction, as well as the address associated, is viewable to the public. While the address is anonymous, the volume is transparent which could be flagged as suspicious. I assume that Russia has prepared for the exclusion from SWIFT by setting up relationships with banks in the likes of Asia.
However, I think the increase in publicity for crypto as an alternative settlement method has been positive overall. This is because millions of dollars have been donated to Ukraine through crypto. Over $19M in crypto donations has been sent to Bitcoin and ERC-20 (ETH) addresses of the country, which were shared on the official government Twitter account. This marks a historical moment - the first time that a government has raised money via crypto at scale. The negatives being discussed are clearly outweighed by the power of crypto to act as a solution.
Bitcoin proponent Preston Pysh highlights this point by saying, “Bitcoin is like a knife to a surgeon or a knife to a criminal. Like any valuable technology throughout time, its value comes from the intention behind its use.”