The Breakdown - For Russia and Ukraine Refugee Charities, Crypto Is a Lifeline

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.com, and FTCS, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, July 19th, and today we are discussing the latest out of Russia as regards crypto. But before we get into that, if you are enjoying the breakdown, please go to do. subscribe to it, give it a rating, leave a review, or if you want to dig deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also, a disclosure as always. In addition to them being a sponsor of the show,

Starting point is 00:00:51 I also work with FTX. All right, friends, so today we are talking a bit about what's been going on in Russia with regard to crypto, but before we do that, let's do just a little bit of price talk. Yesterday saw Bitcoin hit its highest price in the last 30 days, surging up above 22,000 to nearly 23,000. Ethereum was up even more and remains now above $1,500 per ETH on the merge narrative, which was, of course, the subject of yesterday's show. As they are wont to do, a handful of vaults surged even more than that. So what is this rally about?

Starting point is 00:01:29 I've seen a few possible explanations that I think perhaps kind of tell the story, if you'd pick and choose from them and put them together. The first theory is it's some sort of stabilization in the macro. From CoinDesk, Oanda's senior market analyst Edward Moya said that crypto sentiment was improving amid signs that the global economy would remain on solid footing in the near future. As the Fed implies that it would only raise interest rates by 75 basis points at next week's FOMC meeting rather than the full percentage point markets were pricing in.

Starting point is 00:01:59 Moya said, quote, if Bitcoin continues to stabilize here over the next two weeks, the crypto winter could be over. End quote. Now, that is way, way too optimistic for my taste and sort of ignores the geopolitics of the macro right now in my opinion, which you'll see later on in the show. Also, this is a great demonstration of the Fed's power of media. After the 9% inflation print, markets raced to price in a 100-point basis hike, which, by the way, had extra narrative juice because the last time the Fed hiked rates a full percentage point

Starting point is 00:02:31 in a single meeting was in, you guessed it, 1981 the same year that was the last time we saw more than 9% inflation. So given that, when the Fed indicates that it's actually only going to do 75 basis points instead of the full 100, the market feels happy. Now, keep in mind, this is the second 75 basis point hike in a row, and previous to this, we hadn't even seen one of those since 1994. But still, this is about feeling and sentiment, and if the feeling is the macro is leveling, even if I think that that's not exactly true, it could be part of this relief rally for crypto as well. But then there is another theory. Cryptodon alt tweets, ETH went from $900 to $1,700. You guys think that's because of macro? So of course,

Starting point is 00:03:17 what he's referring to is the Eith merge narrative coming to the four. Let's look at this from a cynical and a slightly less cynical perspective. The cynical take is that people right now are desperate for any narrative in crypto, and so are glomming onto this eth-merge narrative. Degen Spartan said yesterday that he thinks a lot of the merge trade will be exactly this, and I kind of think he's right. Now, the less cynical take is that building new things and actually making technical progress is going to be key to restoring excitement to the crypto markets. Let's hold aside debates about proof of work versus proof of stake for the moment. There are a significant number of people in this industry for whom the merge and Ethereum's transition to proof of stake

Starting point is 00:04:02 represents a seminal turning point moment in crypto history. To them, this does have real power, not just narrative power. Now, as I mentioned yesterday, the amount of discussion of the merge in the context of price, which is dominating any other type of discussion about it, makes me think that right now in this specific moment, we're slightly more on the cynical side in terms of price. But I don't think that that fact undermines the reality of how many people view this as a transformational moment. It's just the transformational moments are long-term trades not up 60% in a week. Then there is a third possible explanation of this relief rally, which it seems to me like fewer folks are talking about, but maybe I'm just missing them.

Starting point is 00:04:42 My belief remains overall that this is in large part a macro-driven bear that we're experiencing. We are in a secular shift to a new monetary era, and the great repricing around risk assets of all types is underway. My base case for how the crypto market is, responds to that great repricing and continued macro instability and monetary tightening is for us to find some bottom range that we float around in for a while while the macro side of things does what it does. This range could be fairly large, given that a lot of the folks who are still in this industry remain well capitalized and still up fairly big after the last bull run. What's more, periods of lower liquidity are inherently going to see smaller price moves

Starting point is 00:05:21 amplified. The point being that as a for example, ETH ranging from $800 to $200 to $2,000,000, in this period wouldn't be a particular surprise to me. Within this context, though, another factor that could be driving some return to optimism is that the fear of contagion continuing to spread in the wake of the last few months of institutional failures is starting to subside. We're getting more details on things like who Three Arrow's Capital owed money to, seeing all the exposure that other firms had, etc. And while some of it is fairly shocking and will be cause for some serious reflection, it's also barely well contained, or at least seem so right now. For weeks, there has been a fog of war, rumor, innuendo, anonymous accounts claiming all manner of

Starting point is 00:06:06 horror. And it should be noted that it is still entirely possible that there is more agony in the future. If prices fell, another 50% who knows what additional sorts of cascades and liquidations it might cause? These are non-zero possibilities. But for the moment, it feels calmer and a little more clear. And because of that, the markets may be finding the base prices for the bear that aren't fully depressed by outright fear. In other words, it's possible to me that we've been a little too low, even if we're in the range of where we're supposed to be and float around in during this bear market period. In times like these, security of your assets should be your number one priority. If you want to offset risk as much as possible and still stay in crypto, you need a

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Starting point is 00:08:15 Download the FTX app today and use referral code breakdown to support the show. But anyway, that is enough market takes. What I want to discuss for real is the latest out of Russia as regards crypto. Vladimir Putin has signed a law banning digital payments across the country, according to a policy announcement on Thursday. The law was approved by the Duma, the Russian Parliament on July 8th. It bans the use of digital securities and utility tokens as a means of payment for goods and services in Russia. Now, this bill was introduced by the Russian Ministry of Finance in February seeking to regulate crypto, which was in direct conflict with the central bank of Russia which

Starting point is 00:08:53 sought a complete ban on holding or trading cryptos. So as weird as it sounds, it's sad. given that it is a ban of digital payments using crypto, it's actually sort of the more liberal outcome of the things on the table in Russia. It's still not super clear what Russia is trying to achieve with its crypto policy right now, but this certainly isn't the outright ban that the central bank was going for. CoinMamba writes, I don't think anyone was using crypto as a means of payment in Russia anyway, so nothing changed. Don Durrett writes, Ouch. Russia just banned all cryptos from being used as a means of payment for goods, products, or services. There goes that idea that Russia will sell its oil in Bitcoin. Now, Russia's selling

Starting point is 00:09:32 its oil for Bitcoin was never really on the table. It was an errant throwaway comment of some official that, of course, we picked up on and amplified to an extreme degree. Also happening currently in Russia, the Bank of Russia is calling out a growth in crypto scams this year. Their argument is that because sanctions have so dramatically changed the landscape for investment in their country, aka normal investments are much, much harder to access than they previously were. More citizens are turning to, quote, alternative investment opportunities, which is basically a playground for scammers of all types, crypto and otherwise. The Bank of Russia says illegal financial activity is three times as common this year than it was

Starting point is 00:10:10 in 2021. But to me, these are not the only interesting or even most interesting stories out of Russia with respect to crypto. One perhaps underreported aspect of the war in Ukraine is the refugee crisis. Millions of Ukrainians have fled their country, and there are increasing reports of young Russian men relocating to avoid conscription, as well as journalists and political dissidents leaving the country as well. To facilitate support and fundraising around this refugee crisis, some NGOs are starting to turn to crypto as an emergency payment rail.

Starting point is 00:10:42 Smaller charities face extreme challenges in these types of contexts. They can face unwelcome treatment abroad, they can face retaliation from their home country, especially in the case of Russian-operated charities. And within that paradigm, crypto is becoming the fastest way to help people across borders. Coin-Desk spoke with a number of smaller charities in several countries who are dealing with the refugee crisis. Priestiniste, which is named after the Serbian word for refugee, was founded by Alexander Shmelev and his wife, Svetlana, both well-known Russian activists and educators. The charity is operating a small refugee shelter in Montenegro, consisting of three multifamily homes, currently housing 78 refugees.

Starting point is 00:11:18 Initially, the charity did not have a bank account in Montenegro, but needed to raise funds and finance operations. In the time it took the bank account to be approved, the charity had already raised $50,000 in crypto. This highlights the fact that for international donors who wish to donate a small amount, crypto is one of the only ways to do so without incurring the high fees of a swift transfer. There are also issues for Russians who wish to assist refugee charities, but feel that doing so would make them face political threats back home. Donations abroad may be seen as treasonous. Bank transfers make any donation immediately traceable. And of course, while crypto payments have obvious privacy shortfalls, they can be used in ways that at least make identification of dissidents

Starting point is 00:11:56 more difficult. Yet another issue has been the unbanking of refugees themselves, particularly Russian refugees whose domestic bank accounts no longer function internationally due to sanctions. Visa and MasterCard have stopped processing payments from Russian cards, and global payments networks including Western Union-wise, remitly and Moneygram all stopped serving Russian users. Yulaya Koshaleva, a Russian-born freelance journalist who is operating another small refugee housing organization in Georgia, said that she is struggling to receive payments via traditional means.

Starting point is 00:12:26 Quote, sometimes people from other countries ask how to send us money, and we suggest a swift transfer, but they say, are you crazy? Most of my donation is going to be eaten by fees. The coin desk piece goes on to look at a few, more charities that are starting to integrate crypto for all of these reasons. Volunteers at Tbilisi, another small organization in Georgia, told coin desk that they are receiving

Starting point is 00:12:44 between 7 and 10% of all donations in crypto. Russians for Ukraine, a charity operating at the Polish border and run by Russian dissident George Nermanov, has opened crypto wallets in response to requests from donors. He noted that they were experiencing intermittent issues with PayPal and GoFundMe if accounts were frozen or transfers took too long to clear. Ethos, a fund that assists Russian expats in Armenia using housing medicine and hygiene products, has been raising funds in crypto as well. Vlad, a volunteer for ethos, said, quote, for Russian citizens sending money to help Ukrainians might not be safe. Remember that during the first week of the war at the end of February, Russia's office of Attorney General warned in its

Starting point is 00:13:19 official telegram channel that helping a foreign state or organizations whose activities are, quote, directly against the safety of Russia, could be considered high treason. So far, we don't know of people being punished for supporting humanitarian causes, but Russian legal experts are warning against people using their personal bank accounts for helping Ukrainians in any form. Yulia Koshalewa said that she and her team expect their main donors to be Russian. Quote, we know that many people who left Russia after the war began do care about what's going on, and it's important for them to show they disagree with the government's actions. For some, donating money is the only available way to protest against the war and support

Starting point is 00:13:54 Ukrainians. Many Russians come to us asking how to send us money. To help financially in this horrendous situation is a little something people can do. One of the points that people like Alex Gladstein try to make all the time, especially when American or Western-based critics say that crypto has no use cases, is to remind people that the rule of law means very different things in different places. Most people don't live under highly functioning democracies. They live under authoritarian's in unstable monetary regimes or in the shadow of outright conflict. The value, the importance, the justice of permissionless payment rails in those situations looks very different than it might from an average United States point of view. Now, there is one other dimension of the Russia story to discuss.

Starting point is 00:14:44 The fault line in the global sanctions against Russia was very quickly recognized as energy. Europe is hugely reliant on Russia for energy, and it creates power for Putin that the EU cannot easily just turn its back on Russia's oil and natural gas. Currently, the Nord Stream Natural Gas pipeline from Russia to the EU is down for scheduled maintenance. However, the European Commission, its planned return is Thursday the 21st. However, the European Commission is now saying that they don't expect it to come back on. Budget Commissioner Johannes Hahn said on Tuesday, quote, we don't expect that it comes back.

Starting point is 00:15:22 We are working on the assumption that it doesn't return to operation, and in that case certain additional measures need to be taken. Now, Moscow and Gazprom have given no indication that it won't come back on, but the fact that the European Commission is saying this out loud shows a severe escalation in the energy crisis unfolding in Europe. From Bloomberg, the Commission, the EU's executive arm, is due to unveil on Wednesday a plan for coordinated gas demand reduction to mitigate the impact of a potential cut-off by Moscow. It is considering a set of recommendations to member states, including voluntary reductions to heating and cooling use and some market-based measures. commission may also seek the right to force consumption cuts if needed later on. This sort of instability and lack of clarity is why it's hard for me to put too much stock in that macro is fine now kind of take that we heard earlier in the show. Now, I think that analysts might be referring simply to the fact that we're likely to see another 75 basis point rate hike instead of a 100 point hike,

Starting point is 00:16:18 but while the market may like that in a sort of very short relief rally kind of way, at some point they're going to remember that we're still facing an energy crisis, an unresolved conflict in Europe, 9% plus inflation in the U.S., monetary tightening happening out of velocity that we haven't seen for 30 years, and so on and so forth. So I guess I will say that we should enjoy this rally while it's happening, but gird ourselves for more pain to come. I want to say thanks again to my sponsors, nexus.i.o, chainalysis and FtX, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - For Russia and Ukraine Refugee Charities, Crypto Is a Lifeline

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