No matter where you live right now, it’s pretty tough to ignore the three topics of inflation, Russia’s unprovoked invasion, and interest rates. They may appear to be unrelated at first glance, but they are not. This is because the fourth element, cryptocurrency, is much further down the list of things for most people to talk about. So how is it all connected? Allow me to explain.
Russia continues to face an onslaught of crippling sanctions affecting its entire economy. Until recently, the Russian economy was being kept afloat by oil revenues. In response, the EU disarmed the Russian leader’s economic leverage against his neighbours. Now he’s only got one card left.
Why Russia Matters
On January 26th, shortly before Russia’s unprovoked invasion of Ukraine, Putin pressed his government “and the central bank to come to ‘some kind of unanimous opinion’ in the near future, on the use of cryptos.” This is important in terms of both timing and risk management. He is allowing his central bank to legally accumulate digital assets like Bitcoin and Ethereum covertly while signalling to the West the opposite by signing into law a ban on digital payments in Russia.
That wouldn’t apply to Russia’s cross-border payments as a blanket ban would hamper their ability to circumvent sanctions. And if you hold on long enough, cryptocurrencies outperform traditional asset classes. So where do interest rates come into play?
When money is cheap, riskier investments are more attractive. And when interest rates go up, investors flock to value stocks from growth stocks. Typically, technology companies fall into the riskier growth asset category. As well as cryptocurrencies. This adds increased financial pressure to the Kremlin’s balance sheet, on top of significant drops in oil revenue that helped stabilize Russia’s inflation and biting sanctions. A strong US dollar caused by continuous rate hikes is good for America’s buying power, but not so for everyone else.
The US Government may have opted for strategic ambiguity around cryptocurrency leadership precisely because they aren’t as Iran, China and Russia are for the next crypto bull run. Alarm continues to grow around this looming, preventable global recession, due to rapid interest rate hikes. An interest rate reversal can only happen once Ukraine is fully liberated and the current Russian regime defenestrated. But why?
Final Thoughts
Global economies are borrowing a great deal of money to pay for civil and defense infrastructure, meet climate change commitments and the lofty immigration targets western countries have set for themselves. It can’t be done when the cost to borrow is prohibitively high. Sometimes it really is just about following the money.