The Breakdown - Is Russia Trying to Ban Bitcoin?

Starting point is 00:00:04 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 nexo.io, Abra, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, January 20th, and today we are talking about the possibility of a Russian ban on basically everything related to crypto. First up, however, if you are enjoying the... Breakdown, go subscribe to the show, leave a rating, leave a review, or if you want to dig deeper into the conversation, join the Breakers Discord. You can find the link in the show notes, or you can go to bit.ly slash breakdown pod. Finally, the standard disclosure in addition to them being a sponsor,

Starting point is 00:00:56 I also work with FTX. So right now, as we're recording this, the House Hearing on Crypto and energy usage is happening. And originally I was going to do a show all sorts of fud busting around that, but I decided to combine it into one. I want to give a little time to see people's reflections on the discussions going on in Congress today and bring it together to you all tomorrow. So look out for that. What I want to focus on today then is a couple other big pieces of news that really hit two very different but important dimensions of the crypto industry in 2022. On the one hand, a nation state, trying to make a determination about how it's going to engage with this whole industry, and on the other hand, NFTs and what they might mean for the future of business,

Starting point is 00:01:42 culture, entertainment, etc. So yesterday on the show, I discussed how 2022 was going to be a year where governments really have their come-to-grip's moment with the crypto space, figuring out where they're going to fit, how they're going to fit it into public policy frameworks, and in many ways there are now two extremes that governments can look at as tent poles. On the positive extreme, there is El Salvador who has actually made Bitcoin legal tender, the first nation state to do so. There are a lot of reasons for countries to be compelled by that example. The next 20 or 30 years of global monetary strategy isn't exactly determined yet, and there is a ton of competition to see which currencies will shape the future.

Starting point is 00:02:28 By aligning with a non-sovereign currency, El Salvador is saying that it's not going to be subject entirely to other nation states as it relates to its monetary system. Now, of course, on the other end of the spectrum is the China model, an outright banning of crypto and everything related to crypto in order to pave the way for a central bank digital currency. Because it seems very clear in retrospect that China's ban of crypto, while long coming down the pipeline was about more than just a dislike of crypto. In the months before China focused its attention on crypto itself, it was working very hard to get the entire digital mobile money

Starting point is 00:03:07 structure run by technology companies back within its control. It was only after it had effectively tamed the beast of companies like Ant Financial that the CCP started to turn its eye to Bitcoin in a more aggressive way. In either case, those are the two extremes. You have China on the one hand and their model of banning everything and El Salvador and the other. As a reminder of what Fidelity Digital Assets wrote about exactly this earlier this year, and I know I quoted this yesterday, but it's just so perfectly fits here that it's worth bringing up again. Quote, we think the two developments observed this year couldn't be more opposed. Time will certainly tell which path is more successful, but given our view of digital assets,

Starting point is 00:03:44 it isn't surprising that we think an outright ban will be difficult to achieve at best, and if successful will lead to a significant loss of wealth and opportunity. history has shown capital flows to where it's treated best and embracing innovation leads to more wealth and prosperity. We also think there's a very high-stakes game theory at play here, whereby if Bitcoin adoption increases the countries that secure some Bitcoin today will be better off competitively than their peers. So with all that in mind, let's get to the big blaring headline that the Bank of Russia is calling for a full ban on crypto. The country's bank just released a report called cryptocurrencies, trends, risks, and measures. It was presented by the director of the financial

Starting point is 00:04:22 Department during an online press conference earlier today. Its main critiques of cryptocurrency were volatility. The fact that crypto is widely used in their estimation in illegal activities. This, by the way, is one of the stickiest fuds, despite every year chain alias showing how a smaller and smaller percentage of crypto is being used for illicit purposes. In 2021, it was just 0.15.15 of a percent of transactions were used for illicit purposes. But here I think is the bigger reason. The Central Bank of Russia wants to ban crypto because it gives people a way to take their money out of the economy and thus undermines monetary policy. That is not me inferring something. That is what they said explicitly. Nexo is a trusted and easy to use crypto platform where you can

Starting point is 00:05:11 buy cryptocurrencies at the touch of a button and start earning up to 17% annual interest that is paid out daily. They support all of the major assets on the market and even allow you to swap one asset for another or borrow cash against your crypto without selling it. Nearly three million people in over 200 countries trust Nexo with their digital assets. So whether you're just getting started or you're a season pro, get the most of your crypto today with Nexo at NXO.com. Today's episode is sponsored by Abra. Join over one million users and conquer crypto with Abra, an all-in-one, simple and secure app where you can trade over 110 cryptocurrencies. Get 0% interest loans using your crypto as collateral and earn interest with up to 14% APY on stable coins and 8.15% APY on Bitcoin.

Starting point is 00:06:06 Visit Abra.com or download the app from the Google Play or Apple App Store today. Abra, Conquer Crypto. The breakdown is sponsored by FTX. FTX is the safe, regulated way to buy and sell Bitcoin and other digital assets. Trade crypto with up to 85% lower fees than top competitors. FtXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. You can trade NFTs with no gas on FTXUS, and gas is subsidized when you withdraw off the platform. Help support the breakdown and visit FtX.us today. That's FtX.us.

Starting point is 00:06:52 So what is the Central Bank of Russia recommending? First, they're not suggesting banning ownership of crypto by private citizens. However, they might as well be. What they are suggesting prohibiting is issuance of tokens, any sort of trading activity that uses the country's existing financial infrastructure. They are suggesting prohibiting institutional investors from being allowed to invest at all. There is already a ban on using crypto for payments, but the central bank recommends adding new punishments introduced for buying or selling goods, services, or labor using crypto as a currency. Additionally, it's already prohibited for mutual funds to invest in crypto, but they want to see new punishments put in. place there as well. Another big topic, as you might imagine, was mining. And this is particularly interesting because last year there were some positive comments from the country's parliament and various

Starting point is 00:07:42 ministries around mining. Last year, Russia's Ministry of Economic Development, Ministry of Energy, and State Duma, which is the lower house of representatives, discussed wanting to legalize mining and treat it as entrepreneurial activity. Now, mining is, of course, big in Russia. According to the Cambridge Center of Alternative Finance, Russia was the third biggest location for mine, in August of last year, seeing just over 11% of global hash rate after only the U.S. and Kazakhstan. These ministries argued that formalizing the Russian mining industry would be a boon to the economy, and that what's more, it already fits within the definition of entrepreneurship that exists in Russia's civil code. Now, keep in mind that mining is not technically banned in Russia. It's just confused

Starting point is 00:08:23 as it relates to regulations and taxation. The central bank opposed all of this notion when it was first announced, and in their report today, they reiterated this stance. The report said that mining, quote, creates a non-productive electricity expenditure, which undermines the energy supply of residential buildings, social infrastructure, and industrial objects, as well as the environmental agenda of the Russian Federation. Thus, they believed the optimal solution, their words, was banning it. Now, of course, anytime you see something like this, the important question is how serious is the threat.

Starting point is 00:08:54 Remember, it was who was making the China ban comments that actually mattered ultimately. Roman Zabuga, the PR director of mining hosting provider BitRiver, said that the probability of Russia actually banning crypto is negligible. Witt Gibbs, the CEO of Compass Mining, said this is the Russian Central Bank reiterating their old sentiment ahead of upcoming working group formation. Certainly from a market standpoint, actors in the space do not seem concerned about this. Bitcoin is up about 3% since yesterday. For Russians, of course, it's more concerning. Now, the Central Bank also said in this report that it thinks a Russian C-Burban, CBDC, a digital ruble would satisfy the needs of Russians for faster and cheaper digital payments.

Starting point is 00:09:34 And now, from here, market participants have until March 1st to comment on the report. Lynn Alden summed up my feelings and many people's feelings, I think, very crisply in a couple tweets about this, saying, Russia now seeks to follow China and banning Bitcoin and crypto. Citing financial stability in terrorist financing, what Russia really means is preventing capital flight and maintaining authoritarian control over political opposition. Bitcoin isn't a problem for free countries. does pose a challenge to authoritarian regimes. It's probably best to think about that and understand the technology before calling it useless or a waste of energy. Now, back to a U.S. game theory perspective,

Starting point is 00:10:10 we now have two of the U.S.'s biggest geopolitical antagonists, both either banning or signaling bans. By the transitive property, doesn't that mean we should be at least paying attention to this technology that they seem to hate so much? Certainly, I expect to see a lot of that type of argument flowing through Congress and the Senate in the weeks and months to come. Now, some news from the other end of the crypto spectrum, talking about geopolitics, what a perfect compliment to now switch into social networks and their use of NFTs. The Financial Times is reporting that Facebook and Instagram are exploring plans to make, showcase, and sell NFTs. The report is that teams are working on a feature to display NFTs on their

Starting point is 00:10:49 social media profile. In addition to that, there are teams working on a prototype to help users mint NFTs, and meta is also discussing launching an NFT marketplace. Now, this comes from sources inside with knowledge of these efforts, and frankly, is not super surprising. Facebook, after all, changed its name to meta, and in December, Instagram's Adam Mosseri said that it was actively exploring NFTs without giving any more details. But apparently, the NFT showcasing feature is now in internal testing. There are a couple interesting things here.

Starting point is 00:11:18 For the right-click Save As critiques, i.e. the people who say, this is stupid because I could just make it my profile picture as well, this potentially undermines that argument pretty hard if there's the equivalent of a blue check mark for ownership, especially if people actually care about that. Second, Rineshot Adams from Bankless saw this and called it the beginning of a Web 3 space race, and frankly, I tend to agree. I tweeted a couple weeks ago, just because you think a thing is stupid doesn't mean it's not a thing. Even for those NFT skeptics out there, these companies have decided to wage this war. In doing so, they're imbueing parts of the Metaverse at least with the power of self-fulfilling prophecy.

Starting point is 00:11:56 It seems highly unlikely to me, given how many pop culture people have gotten into NFT avatars, that the mainstream is just going to dismiss it out of hand when it's presented to them in such a big way. Now, what does it mean for this corporate versus open Metaverse battle that we've been following along with? That is certainly still going to be a fight. Jason Yanowitz from Blockworks had an interesting tweet saying, one, Facebook and Instagram users will be able to display NFTs.

Starting point is 00:12:20 2. Twitter, already the biggest driver of NFT marketing, launching NFT verification. Three, Shopify, launching the ability to mint and sell your own branded NFTs. Web 2 is the distribution funnel for Web 3. And breaking as I was recording this, it looks like Twitter's NFT verification feature is going live as we speak. Faroak on Twitter wrote, NFT profile picture verification is live, probably nothing, let's go. Web 2 is shifting to Web 3 one step at a time and you love to see it. Keep going, friends. That post also linked to screenshots. Verified NFTs will appear as hexagonal images and you'll

Starting point is 00:12:56 connect your wallet to verify. Even if this isn't exactly out now, it's clearly coming very soon. In other NFT news, the investment bank Jeffries is predicting NFTs will reach more than $80 billion in value by 2025. It also has revised up its market cap estimates for NFTs this year to $35 billion. Now, one of the interesting things about this report is that this investment bank is not just saying that you have to have to have, NFTs or be involved in crypto to be involved in this metaverse space. It suggests, in fact, that clients build a, quote, basket of investment exposure that includes video game companies, toy companies, social media companies. So they mention Hasbro, Mattel, Funko, GameStop, Meta, Snap, Activision Blizzard, Electronic Arts, Warner Music Group, and Roblox. That same report also calls out

Starting point is 00:13:43 threats to Ethereum's dominance because of high gas fees. So really interesting stories that I think show just the insane breadth of what we are going to deal with in this industry in 2022. I want to say thanks again to my sponsors, nexo.io, Abra and FTX for supporting the show. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Is Russia Trying to Ban Bitcoin?

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.