Are the cryptocurrency markets a risk to broader financial market stability?
Well, according to a recent report by the folks at the Financial Stability Board (FSB), they could indeed be. In the report, they analyse the size and scope of the current crypto market and break down the potential risks they foresee.
Not one to simply dismiss something as FUD, I thought that the report was well worth examining in greater detail.
That’s exactly what I am going to be doing today. I will be breaking down the relevant sections and outlining whether I think that these risks are warranted or not. I will also be giving my perspective on some market risks that are not covered in the report.
You can watch the video here.
📊 Main Portfolio 📊
Some minor changes to the portfolio this week. I sold some of my DOT & SOL. Part of this has gone into UST and the rest has been used to buy some more LUNA.
The reason for the latter move has been recent developments in the Terra ecosystem that have made me increasingly bullish. This includes the likes of that $1 billion ecosystem fund that was announced this week.
ETH 31.20% | BTC 23.58% | SOL 8.88% | DOT 8.77% | ATOM 6.40% | FTM 3.99% | UST 3.17% | LUNA 2.75% | MATIC 2.08% | HNT 2.03% | ADA 1.70% | RUNE 1.50% | INJ 1.18% | AR 0.89% | YGG 0.86% | LINK 0.76% | XDEFI 0.26%
🖼 NFT Portfolio 🖼
MAYC 96.73% | Meebit 3.27%
📈 Thoughts on Market 📈
Congratulations on making it through what might be the most intense week since the crypto crash in March 2020 when the pandemic was declared. Today we’re faced with similar amounts of uncertainty due to the invasion of Ukraine by Russia. As I’ve mentioned before, there’s nothing markets hate more than uncertainty, and this dynamic explains the crypto market’s movements.
When Russia invaded Ukraine last Wednesday, asset markets across the board took a massive dip, with crypto taking the brunt of blow. This caused over 240 million dollars in liquidations for leveraged crypto traders who were somehow convinced that crypto would continue to rally amid all this uncertainty. This automated selling caused crypto prices to crash even further.
But by Thursday, the crypto market started to recover, and some indicators suggest this recovery will continue. This is simply because investors had some semblance of certainty: they knew for sure that Russia had invaded, so they could plan accordingly. Not only that, but by Friday most of the sanctions that were likely to be levied against Russia had been put in place – more certainty.
The real question is what happens next. As I’ve mentioned a few times on Instagram, I’m concerned that we will see other countries take advantage of this chaos to make their own moves (you know which one).
It’s also not yet clear whether the world will go as far as sanctioning Russian oil exports given that energy prices are already through the roof. There is also the question about whether they will kick Russian banks out of the SWIFT system and whether that could drive Russia to find alternative methods to bypass this (more on that next).
Then of course, there is the million dollar question of what the Fed will do in its much-anticipated March meeting. Much of the expectation around interest rate increases came before the eruption of war in Ukraine. It seems as if the market has adjusted expectations down and that we could only see a 0.25% increase after the meeting.
This will ultimately depend on what the February inflation numbers look like. The problem is that this war could further exacerbate the supply chain disruptions and further increase energy prices – both not good for inflation. This could still force the Fed’s hand and cause it to act.
If there are surprises to the upside or downside with the expected rate hikes, expect to see crypto move together with the rest of the financial markets.
💹 Sanctions, Finance & Crypto 💹
Now that Russia has finally decided to invade Ukraine, western sanctions on the country are beginning to ramp up. One that has often been cited to be the most damaging is the exclusion of Russian banks from the SWIFT messaging system.
For those that don’t know, this is the global messaging system that acts as an intermediary for all global cross border payments. By being excluded from this network, Russian banks (and banks that deal with them) would have to find alternative ways to route money. It has been called the “nuclear option” because of how much damage it could do.
As of right now, it seems as if numerous countries are showing their support for doing this. However, some people are saying that should this in fact happen, it would force Russia to find alternative methods of payment and alternative payment systems.
Naturally, this has led many people to openly start suggesting that the country could turn towards cryptocurrency payments to avert these. They’re permissionless and there are no centralised entities that can exclude a country from being able to use them. Indeed, there are countries like North Korea & Iran that have been accused of using cryptocurrencies to bypass financial sanctions.
I am not too happy about this eventuality. That’s because it will further add weight to the arguments of governments as to the supposed ills of cryptocurrency. No one wants to see a technology facilitating war and destruction.
However, this got me actively thinking: Would Russia even consider this? And if it did, could it actually work?
Well, as it pertains to the former, Putin has said that crypto “has the right to exist and can be used as a means of payment”. However, he also said that it was too soon to consider crypto as a method of payment for the country’s oil exports. Yet, the fact that he even acknowledged its benefits shows that it has been on his mind.
Having said that, even if Russia did decide to do that, I think it would have a very hard time using crypto. This is for a number of reasons:
- Transparency: The blockchain is fully transparent. All addresses that are linked to Russian banks or oil companies can be sanctioned. Any payments that emanate from these addresses can be quickly traced and identified. These will automatically be tainted and very hard to sell. Anyone who buys it will have to get it at a considerable discount.
- Liquidity: Even if there are buyers willing to accept tainted cryptocurrency, the volume they could accept would be insignificant. In fact, it is likely to be a pittance compared with the billions of daily oil and energy trade that Russia does.
- Volatility: Crypto is still quite volatile and it would be hard for these companies to plan for payments. This is in fact the main criticism that Putin has with crypto. Even if Russia tries to use stablecoins, the centralised variants can easily be frozen.
So, this should put our minds at ease about the potential for crypto being used for these illicit purposes.
In fact, it’s way more likely that cryptocurrency will emerge from this conflict with a much more positive narrative driving it. Crypto fundraising efforts for Ukrainians have been surging as people try to find ways of getting money to those in the resistance. The Ukrainian government is in fact directly fundraising for the effort on Twitter.
Citizens in Ukraine are also using crypto as a means to bypass the country’s currency controls. As I mentioned in my newsletter last week, crypto could provide a means for people to get their money out of the unstable hryvnia. Scenes of people waiting outside ATMs with limited cash in them further reinforces the need for it.
At the end of the day, crypto is just technology that can be used for good or evil. But, it’s a technology that could also allow people to easily discern good from bad.
🤫 The Fourth Turning 🤫
As some of you will know, I love to read and listen to podcasts whenever I have the time. Over the last few months I’ve heard a term repeated that I’ve been thinking a lot about. It’s called ‘The Fourth Turning’, and it’s a theory which states that the world sees a serious crisis every 100 years or so that results in some serious changes.
The Fourth Turning is more than just a theory. It’s also a famous meme: hard times make strong men, strong men make good times, good times make weak men, weak men make hard times. Similar concepts can also be found in famous hedge fund manager Ray Dalio’s new book called ‘The Changing World Order’ which I have heard a lot about but have admittedly not read (yet).
In any case, the idea is what matters: every so often something happens and there’s a radical shift in the way the world works. From where I’m standing, the radical change we’re seeing is one towards either extreme centralisation or extreme decentralisation. There’s a lot to unpack here, but I’ll keep it as brief as I can. Let’s start from “the beginning”.
March 11th, 2020 is the day the World Health Organisation declared that the world is in a pandemic. The responses that followed from governments around the world were unprecedented, and did three things. First, they exposed how fragile the world’s supply chains are. Put differently, they showed how dependent countries have become on each other for even the most basic things.
The second thing pandemic responses did was shatter public trust in existing institutions, specifically the government and the mainstream media. The alarming amount of coordination between these two, as well as social media platforms, made people question whether the narratives being spun were to protect them, or to protect the machine and the people in power.
The third thing pandemic responses did was expose how the current financial system works, namely that when money is printed, the wealthy and Wall Street seem to be the first recipients of this capital. Meanwhile, regular people lose their purchasing power, and with much of the planet stuck at home with nothing to do, people started to notice, and financial literacy increased.
As a result of these and other events, the world is now at a crossroads on three major fronts. First, do countries become more self-reliant? If they become more self-reliant, they become less efficient and potentially less prosperous. If they don’t become more self-reliant, they remain efficient but also vulnerable to global disruptions of all kinds while weakening global ties.
Second, do countries allow the free flow of information? If they do, then trust in institutions will continue to decline, because there will be no shared narrative for the people to rally around, and this means the country itself could collapse. If they don’t, then it’s only a matter of time before the people find out they’re being lied to, and this could result in a revolution or worse.
Third, do countries decentralise their money or do they centralise it further? If they decentralise it, then they no longer have control over monetary policy and run the risk of foreign financial influence. If they centralise it further, then they open the door to a totalitarian system unlike any other, because it’s only a matter of time before it falls into the wrong hands.
Call me crazy, but I think what we’re seeing around the world right now can be summed up as a conflict between the people who want the former three (interdependence, control of information, control of money) and the people who want the latter three (independence, free flow of information, open money). Which side will win? Who knows, but I know which one I’m on.
🔥 Deal of The Week 🔥
There has been a lot of talk about “self custody” recently. Especially in light of the attempts of some countries to freeze crypto that is held on certain centralised exchanges.
If you are thinking about taking full control of your crypto, then you will want the gold standard of private key security. I am of course talking about a hardware wallet. And, when it comes to hardware wallets, there are quite a few options on it – as detailed in my video on the topic.
But which hardware wallet do I use to keep Coin Bureau’s version of Gringotts safe? Well, that would be a Trezor hardware wallet! Here you can store over 1,000 different cryptos. So, the chances are that even your most avid altcoin dabbler is going to be able to store their entire portfolio here.
If you need help setting up your Trezor then I take you through the steps here!
👉 Get A Trezor & Keep That Crypto Safe!
🔮 Video Pipeline 🔮
- Crypto Transaction Fees: All The Coins Compared
- When fiat fails: The story of fiat failures in the 20th century!
- The biggest corporate moves in the Metaverse
- Flow blockchain: Why this NFT chain could be a big deal?
- Top crypto charities: Using Your Sats to Help Others!
- Top staking cryptos 2022: which are worth it?
- The Nest Mega Trade: Don’t Sleep On It!
- Best ways to avoid NFT scams: All you need to know!
🏆 What’s New At CoinBureau.com This Week? 🏆
✅ Binance vs KuCoin: Which Exchange is BEST?
That’s all for this week guys. As always, I want to thank you for continuing to support the Coin Bureau. We pour countless hours into the content we produce and it’s great to know that it’s so greatly appreciated! Our vision is to play a role in strengthening the educational infrastructure in the crypto world.
We are also fully aware of the importance of new blood being injected into cryptoverse and the need to help the brightest young minds get involved in this revolution. That is why the Coin Bureau team is working with University societies and we should have some more exciting news to share on that front shortly!
Guy your crypto guy