Former US President Donald Trump has essentially ruled out the threat of cryptocurrencies being banned if he wins another term in the White House, triggering a jump in Bitcoin prices to an all-time high.
Trump, who warned in 2021 that cryptocurrencies were a “disaster waiting to happen,” appeared in a CNBC interview on Monday to have softened his stance. He acknowledged the popularity of alternative currencies, noting that Bitcoin was even used by many buyers of the special-edition Trump sneakers that he unveiled last month. “You probably have to do some regulation, but many people are embracing it,” the Republican frontrunner said. “More and more, I’m seeing people wanting to pay Bitcoin, and you’re seeing something that’s interesting, so I can live with it one way or the other.” Bitcoin surged above $72,000 for the first time after Trump’s interview. Other cryptocurrencies, including Ethereum, Solana and Dogecoin, also rallied. “It’s an additional form of currency,” Trump said of Bitcoin. “I used to say, ‘I want one currency, I want the dollar, I don’t want people leaving the dollar.’ I feel that way, but I will tell you, it has taken on a life.” The ex-president insisted that he still intends to defend the US dollar’s status as the world’s leading reserve currency. “I would not allow countries to go off the dollar,” Trump said. “When we lose that standard, that will be like losing a revolutionary war. That will be a hit to our country just like losing a war, and we can’t let that happen. Too many countries now are fighting to get off the dollar.” As for cryptocurrencies, he added, “I have seen there has been a lot of use of that, and I’m not sure that I’d want to take it away at this point.” Trump is the presumptive Republican nominee to face incumbent President Joe Biden in this year’s US election. Polls released in the past week by the Wall Street Journal, Fox News, CBS News/YouGov, and the New York Times show that US voters currently favor Trump over Biden by a margin of 2-4 percentage points. Although Trump is no longer contemplating a cryptocurrency crackdown, he has pledged to block the development of a US central bank digital currency (CBDC). He said in January that he would never allow a CBDC, calling it a “dangerous threat to freedom.” A digital dollar would give the federal government “absolute control over your money,” he warned.
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Bitcoin, the world’s highest-valued cryptocurrency, hit a new record on Monday as it surged above $72,000.
The token soared to a fresh all-time high of $72,030, breaking the record set in November 2021 and bringing gains for the year so far to nearly 70%, according to CoinDesk data. In 2021, Bitcoin reached $68,790 as the crypto industry boomed and amateur investors poured savings into digital coins. Analysts attribute the latest surge to cash inflows into US-based spot Bitcoin exchange-traded funds (ETFs), as well as to expectations that the Federal Reserve will soon cut interest rates. “Bitcoin has started the week with a surge, dragging the rest of the cryptocurrency space higher with it,” DailyFX strategist Nick Cawley told Reuters. ETFs allow more retail investors to hold Bitcoin indirectly via funds that trade on exchanges. Institutional investors have shown increasing interest in the biggest cryptocurrency by market value after the US regulator approved crypto ETFs in January. The rally of the volatile cryptocurrency comes after its value plunged below $20,000 in 2022. Nearly $1.4 trillion was wiped off the crypto market in 2022 amid bankruptcies in the sector. According to SkyBridge Capital founder Anthony Scaramucci, who briefly worked as former US President Donald Trump’s communications director, the latest rally in the token is a “really big breakthrough for Bitcoin as a digital asset.” The financier added that it is a “much broader story for digital property in general.” Late last year Standard Chartered Bank predicted that Bitcoin would reach $100,000 by the end of 2024, or even earlier. Cathie Wood, CEO of the investment firm ARK Invest, went even further, forecasting the Bitcoin price would breach $1 million by 2030. Only two nations in the world have approved Bitcoin as legal tender – El Salvador and the Central African Republic. However, CAR later reversed the decision. Bitcoin is recognized as a digital asset in many developed countries such as the US, Canada, the UK and the EU, with Germany, Denmark, Japan, Switzerland and Spain allowing Bitcoin to be used in transactions. Meanwhile a number of countries, including China, Qatar, and Saudi Arabia, have banned Bitcoin. Сhina, once one of the most popular places for Bitcoin mining, prohibited all cryptocurrency transactions in the country in 2021 when it forbade banks and other institutions from providing services such as clearing and exchange, and made mining in the country illegal. The price of Bitcoin, the world’s highest-valued cryptocurrency, surged past the $60,000 mark on Wednesday, according to CoinDesk.
The token rose above $60,600 at 14:55 GMT, its highest level since November 2021, marking a gain of over 6% over the past 24 hours. The digital currency has surged for a fifth consecutive day, supported by inflows into US-based spot Bitcoin exchange-traded funds (ETFs). ETFs allow more retail investors to hold Bitcoin indirectly via funds that trade on exchanges. The launch of ETFs in early January has helped drive the value of Bitcoin up nearly 40% so far. According to Reuters, traders are also investing in Bitcoin ahead of the upcoming halving in April, a process designed to slow the release of the cryptocurrency. The value of all the Bitcoin in circulation has exceeded $2 trillion this month for the first time in two years, according to Reuters, which cited the crypto platform CoinGecko. Bitcoin reached an all-time high of $68,982.20 in November 2021 before dropping to around $29,000 last July due to uncertainty caused by the criminal charges against Binance founder Changpeng Zhao and amid concern about economic woes in China. Cryptocurrencies facilitate illegal activities such as money laundering, according to JPMorgan CEO Jamie Dimon, who has insisted that digital assets should be banned.
Dimon once again attacked the top cryptocurrency this week, calling Bitcoin “worthless” and saying he still isn’t buying into the hype surrounding the crypto. “I've always said that Bitcoin doesn't have value,” the Wall Street heavyweight told Fox Business Network on Tuesday. “The actual use cases are sex trafficking, tax avoidance, money laundering, terrorism financing. It's not just people buying and selling Bitcoin,” he claimed. Dimon and several other industry chiefs, including Bank of America’s Brian Moynihan, have said the crypto market must follow the same anti-money-laundering rules as traditional financial institutions. A series of fake tweets from the US Securities and Exchange Commission’s X account this week about the much-awaited Bitcoin exchange-traded fund (ETF) approval decision sent the price of the crypto soaring above $47,000. It later fell as low as $45,400 after the tweets turned out to be fake. The crypto industry has suffered a slew of scandals recently, starting with the collapse of the FTX crypto exchange in November 2022. This placed the sector under intense scrutiny from US lawmakers and resulted in the conviction of former FTX CEO Sam Bankman-Fried. In November 2023, another major crypto exchange, Binance, was fined $4.3 billion for various violations, ranging from money laundering to bank fraud. The introduction of a Digital Euro, a digital form of the European currency, offers numerous advantages in today's rapidly evolving digital world. Here are some key benefits of a Digital Euro:
While the advantages of a Digital Euro are compelling, it is crucial to address concerns such as data privacy, cybersecurity, and the digital divide to ensure that the benefits are accessible to all and that the system is secure and reliable. The world’s largest cryptocurrency by market capitalization, Bitcoin, has jumped to its highest level since June 2022 this week, according to CoinDesk crypto trading tracker.
The token rose as high as $31,411 per coin on Friday before the gains were pared later in the day. Around 07:30 GMT on Sunday, Bitcoin was trading at $30,814, up about 0.4% over the past 24 hours, data shows. It is up around 20% over the past week, and roughly 87% since the start of the year. It is still more than 50% below its all-time high of almost $69,000 in November 2021. Analysts attribute the surge to the recent spike of interest in crypto from financial giants. Last week, the world’s biggest asset manager, US-based BlackRock, applied to register a Bitcoin spot exchange-traded fund (ETF), which would allow investors to gain exposure to the cryptocurrency without necessarily buying it. Two other financial services majors, Invesco and WisdomTree, also recently refiled applications for similar products. These applications came shortly after the cryptocurrency industry faced a regulatory crackdown in the US. Earlier this month, the US Securities and Exchange Commission (SEC) sued major exchanges Coinbase and Binance on alleged violations of securities laws. Binance, the world’s largest crypto exchange, was accused of operating illegally on US soil, while Coinbase, America’s own major crypto trading platform, faced charges as an unregistered broker. Industry experts, however, believe that a Bitcoin ETF could be seen as a positive development in the crypto sector’s quest for regulatory approval, and the recent surge in Bitcoin price signals the resilience of public interest in crypto. In recent years, the stock market and Bitcoin have emerged as two powerful forces reshaping the financial landscape. While the stock market has long been a cornerstone of traditional investment strategies, Bitcoin, as the pioneer of cryptocurrencies, represents a new frontier for investors. The dynamic relationship between these two entities has captivated the attention of traders, analysts, and everyday individuals alike. In this editorial, we will explore the intricate interplay between the stock market and Bitcoin, shedding light on the evolving nature of investing in this digital age.
Conclusion: The intricate dance between the stock market and Bitcoin signals a new era of investing, where traditional and digital assets coexist and converge. The evolution of these two entities intertwines risk and opportunity, volatility and stability, and centralization and decentralization. As investors navigate this landscape, understanding the distinct characteristics, drivers, and regulatory frameworks surrounding the stock market and Bitcoin becomes imperative. Embracing this dynamic interplay has the potential to unlock new investment opportunities, foster financial inclusion, and shape the future of finance. The founder and CEO of the ill-fated cryptocurrency exchange FTX, Samuel Bankman-Fried, has been arrested in the Bahamas at the request of the US authorities. He now awaits criminal charges, weeks after his multi-billion-dollar company went bankrupt. The government of the Bahamas issued a statement on Monday night announcing the arrest, noting that the move “followed receipt of formal notification from the United States that it has filed criminal charges against [Bankman-Fried] and is likely to request his extradition.”
The US Justice Department later confirmed that the disgraced CEO was in custody, with US attorney Damian Williams saying the arrest was “based on a sealed indictment filed by the [Southern District of New York].” He added that the indictment would be unsealed sometime on Tuesday. A source familiar with the matter told the New York Times that Bankman-Fried’s charges will include money laundering, wire fraud, wire fraud conspiracy, securities fraud, and securities fraud conspiracy, and noted that he currently is the only FTX executive facing indictment. Prosecutors have reportedly examined whether the crypto exchange broke any laws by transferring money to a separate hedge fund operated and owned by Bankman-Fried before FTX went belly-up in November. Regulators have also looked into how the Bahamas-based exchange ended up with an $8 billion gap on its balance sheet, and whether FTX lent money to the hedge fund, Alameda Research, for risky trades. Bankman-Fried’s arrest comes less than 24 hours ahead of a House Financial Services Committee hearing he planned to attend virtually on Tuesday, where he was meant to testify about FTX’s downfall. California Democrat Maxine Waters, who oversees the committee, said she was “surprised” that he was in custody, and expressed disappointment that lawmakers would not hear his testimony. The FTX founder has denied any suggestions that he defrauded his customers before his company collapsed, instead maintaining that he “screwed up” while managing the large crypto exchange, which was among the world’s largest at its peak. “I made a lot of mistakes. There are things I would give anything to be able to do over again,” he told an audience at an event hosted by the New York Times last month. Investors have withdrawn a record amount of digital coins from global cryptocurrency exchanges amid fears over the safety of their assets following the bankruptcy of major exchange FTX, data from analytics firm Crypto Compare shows. According to the report, 91,363 bitcoin was pulled out of centralized exchanges such as Binance, Kraken, and Coinbase in November. The tokens were worth roughly $1.5 billion based on last month’s average price of around $16,400.
“Bitcoin recorded the largest outflows from exchanges in its history... Since FTX, centralized exchanges have witnessed a string of outflows as market participants look to safeguard their funds,” Crypto Compare said. It is not clear from the report whether the funds are being sold or moved to private wallets. Data also showed that the outflow trend has continued in December, with 4,545 bitcoin withdrawn from centralized exchanges in the first seven days of the month, while the same period last year saw inflows of 3,846 bitcoin. The rush for the exits comes after FTX, a once major brokerage for trading crypto, filed for bankruptcy protection in mid-November. The company’s downfall left as many as 1 million FTX creditors with no access to their assets, dented investor confidence in cryptocurrencies and set off a chain reaction in the crypto market. In late November, another cryptocurrency lender, BlockFi, filed for bankruptcy. According to Bloomberg, over 130 FTX-affiliated entities have collapsed so far. Eric Robertsen, global head of research at Standard Chartered Bank, warned this week that the crypto market crisis will continue well into next year. “While the bitcoin sell-off decelerates, the damage has been done… More and more crypto firms and exchanges find themselves with insufficient liquidity, leading to further bankruptcies and a collapse in investor confidence in digital assets,” he told the Financial Times. The collapse of the FTX exchange threatens to topple more cryptocurrency companies, BlackRock chief executive Larry Fink warned during the New York Times DealBook summit. BlackRock, the world’s biggest asset manager, is among the financial firms affected by the bankruptcy of the Bahamas-based crypto exchange. Fink’s company manages $10 trillion in assets on behalf of clients ranging from huge pension funds to high-net-worth individuals.
“I actually believe most of the companies are not going to be around,” the long-time sceptic of cryptocurrencies stated. Fink also disclosed that his company had invested roughly $24 million in FTX. “Could we have been misled?” he asked. “Until we have more facts, I will not speculate.” According to the businessman, there were “misbehaviours of major consequences” at FTX, but he still sees potential in the technology underlying crypto, despite all the problems. The collapse of the FTX exchange has set off a chain reaction, triggering a crisis of confidence in the cryptocurrency market. This week, leading cryptocurrency lender BlockFi, which was financially entangled with FTX, filed for bankruptcy. Embattled brokerage Genesis is currently trying to avoid the same fate. Major exchange Kraken said on Wednesday it would lay off 1,100 employees despite having “no material exposure” to FTX. According to Bloomberg, more than 130 FTX-affiliated entities have already gone bust. Failing cryptocurrency exchange FTX has begun moving assets offline, after more than $600 million in tokens was allegedly pilfered from the digital wallets on its platform. After filing for bankruptcy protection from creditors on Friday, FTX “initiated precautionary steps to move all digital assets to cold storage,” said Ryne Miller, general counsel for the firm’s US arm. “Process was expedited this evening to mitigate damage upon observing unauthorized transactions.”
However, considerable damage had already been done. According to an estimate by blockchain research firm Nansen, $662 million flowed out of FTX’s US and international exchanges. The firm’s main wallet, which was used to process withdrawals, was drained of its entire balance of 45.8 million FTT tokens, worth an estimated $97.2 million, Nansen said. A separate review by another analytics firm, Elliptic Connect, pegged the thefts at $473 million. The FTX community administrator on Telegram said the exchange had been hacked. FTX applications are infected with malware, according to the administrator, which also warned followers against loading the exchange’s website. The Bahamas-based FTX and about 130 affiliated companies commenced Chapter 11 bankruptcy proceedings on Friday in Delaware. The firm also announced that Democratic Party donor Sam Bankman-Fried had resigned as CEO. Bankman-Fried, who reportedly ranked behind only billionaire political activist George Soros in 2022 pledges to Democratic Party candidates, saw his entire $16 billion fortune wiped out this week, according to Bloomberg, which called the collapse “one of history’s greatest-ever destructions of wealth.” Miller, the general counsel, said the exchange was “investigating abnormalities with wallet movements related to consolidation of FTX balances across exchanges.” The financial troubles of major cryptocurrency hub FXT threaten to wreak havoc on crypto firms and transform how they’re run, JPMorgan strategists warned on Wednesday. According to a research note cited by Business Insider, the analysts believe this will likely send the price of Bitcoin down 25% to $13,000 a coin. Crypto players are likely facing demands from lenders to put up more collateral, and some may collapse under the pressure, the Wall Street strategists wrote. “It looks likely that a new cascade of margin calls, deleveraging and crypto company/platform failures is starting,” they said. The JPMorgan team pointed out to the close links between FTX and its boss Sam Bankman-Fried’s trading firm Alameda Research, and the wider crypto space. According to the report, Bankman-Fried, who had been heralded as the white knight of crypto, and even compared to Warren Buffett, now appears to be the one in need of rescue. “The number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking within the crypto ecosystem,” the strategists said. They indicated that the whole situation “creates a confidence crisis and reduces the appetite of other crypto companies to come to the rescue.” It could take several weeks for the crypto turmoil to settle down, unless FTX is quickly rescued, the experts suggested. “With the crypto market cap standing at just above $1 trillion before the FTX/Alameda Research collapse, our guess is that the crypto market will find a floor above $500 billion in the current deleveraging phase,” they said. On Wednesday, Bitcoin dropped to its lowest level in nearly two years on news of the potential bankruptcy of Bankman-Fried's company after the world’s largest crypto trading platform Binance abandoned plans to acquire FTX. A deal for major cryptocurrency exchange FTX collapsed on Wednesday as bigger rival Binance said it was pulling out after doing due diligence on the proposed acquisition. Binance signed a non-binding agreement on Tuesday to buy FTX's non-U.S. unit to help cover a "liquidity crunch" at the rival exchange, but the deal was subject to further due diligence.
"As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com," Binance said in a statement. A representative for FTX did not immediately respond to a request for comment, but Chief Executive Officer Sam Bankman-Fried told employees in a Slack message viewed by Reuters that Binance had not previously expressed reservations about the deal. The turmoil over FTX has hit crypto prices. Bitcoin, the biggest cryptocurrency by market value, was last down 13% on the day at $16,277. FTX.com is also facing scrutiny from U.S. regulators over its handling of customer funds, as well as its crypto-lending activities. Michael Saylor is down about a billion dollars on his bitcoin (BTC) bet and just stepped down as CEO at MicroStrategy (MSTR), the software company he founded in the 1980s. Being in a tight spot is familiar territory for the 57-year-old Saylor. After the dot-com bubble burst in March 2000, Jim Cramer, the CNBC host, pointed to the collapse of MicroStrategy as a catalyst. The stock had tumbled 62% in a single day after MicroStrategy announced accounting mistakes, erasing $6 billion from Saylor’s wealth and marking a prominent end to the high-flying days of the early Internet. Later that year, the U.S. Securities and Exchange Commission brought, and then settled, accounting charges against MicroStrategy, Saylor and other company executives. Saylor and MicroStrategy then spent two decades mostly under Wall Street’s radar. Not that he was suffering. MicroStrategy kept plugging away, developing software for businesses. Saylor lived in a Miami Beach, Fla., mansion that looks like a Spanish colonial palace. A recent visit by a CoinDesk reporter revealed painted cherubs on the foyer ceiling, gold paneling and crimson-red wall paper in the dining room, a stage beyond the office library stocked with guitars, drums and whatever else a band might need, and a portrait of Saylor styled like an old English sailor – with laser eyes. A yacht was floating out back, where a crew lived full-time so Saylor could travel whenever he wanted.
What brought Saylor back to center stage was bitcoin. His fear of inflation drove him in 2020 to start investing MicroStrategy’s cash in the original cryptocurrency. The company’s cash flows started getting routed to bitcoin. He lined Wall Street bankers’ pockets by selling debt to raise money to buy bitcoin. In the process, he audaciously turned his sleepy software company into a bitcoin vault. In all, MicroStrategy has spent about $4 billion on digital assets. MicroStrategy’s stock became a proxy for holding bitcoin. The stock price moves up and down in lockstep with bitcoin’s movements.He became something like a bitcoin preacher spouting religiously fervent praise. His grandiose predictions included one that bitcoin will eventually be worth $100 trillion, roughly what all stocks in the world are collectively worth now. “After scientifically studying everything on Earth, I’ve concluded bitcoin is the best inflation hedge,” he told CoinDesk during a November interview at the Miami Beach mansion. “We buy bitcoin as fast as we can with whatever money we find lying around.” His advice as bitcoin was near its record high? “If you have bitcoin, don’t sell it. If you don’t have bitcoin, buy it. And if your bitcoin is moving around, wait.” Fast forward to today. MicroStrategy’s stock has lost about two-thirds of its value since peaking last year, dragged down by the current bitcoin bear market. This week, Saylor handed the CEO title to Phong Le, who had been MicroStrategy’s president, and shifted into an executive chairman role, pledging to put all his focus on bitcoin investing. Le now runs the legacy software business. Saylor wasn't immediately available for an interview for this story. So who is Michael Saylor? Born in Lincoln, Neb., into a military family, Saylor grew up around bases. That included Wright-Patterson Air Force Base near Dayton, Ohio. He attended the Massachusetts Institute of Technology on an Air Force scholarship and became an Air Force second lieutenant. He launched MicroStrategy in his early 20s after convincing his employer, DuPont (DD), to give him $100,000 and free office space and computer equipment, Saylor told Charlie Rose during an interview in February 2000. Saylor’s quirkiness was visible back then, offering a glimpse of what was to come with bitcoin. “I think you're going to see over the next decade that people are going to use software to route traffic on every major highway,” he told Rose 22 years ago. “We're going to use it to determine what hospital we go to or what drug we take. We're going to use it to arbitrage out all the spreads in the interest rates in the finance market and get us a better deal from our bank and probably a better trade in the stock market.” But he immediately noted the serious potential downsides of technology, too, about a month before his stock plunged. “If the software crashes, the civilization comes to a grinding halt in the same way that if you shut down air traffic control at a major airport, traffic will come to a grinding halt,” Saylor told Rose, adding, “And that’s what’s exciting about technology.” These are fraught times for the cryptocurrency and blockchain sector, so it isn’t surprising that industry proponents might seize upon any promising news to help charge flagging markets. A Reuters report out of Uganda last week about a massive gold ore discovery supplied just this kind of fuel. What does the state of gold mining in Africa have to do with the price of global Bitcoin (BTC)? Quite a bit, potentially. Bitcoin has periodically laid claim to being digital gold largely on the strength of its strict 21 million supply limit, which makes it non-inflationary and a good store of value — in theory. Gold, of course, is the store of value par excellence, with a limited supply and a solid track record that goes back millennia. But, if Uganda is sitting on 31 million metric tons of gold ore, as the government declared, might not that substantially boost the world’s gold supply? That in turn could lower the price of gold — and make it a less secure “store of value” generally. Gold’s loss could be the cryptocurrency’s gain. Some drew encouragement from this notion. MicroStrategy CEO Michael Saylor, for instance, posted a video on Twitter about the Ugandan discovery of “huge gold deposits” which might net 320,158 metric tons of refined gold “valued at $12.8 trillion.” As Saylor noted on June 17: “#Gold is plentiful. #Bitcoin is scarce," further telling CNBC: “Every commodity in the world has looked good in a hyperinflationary environment, but the dirty secret is you can make more oil, you can make more silver, you can make more gold. […] Bitcoin’s the only thing that looks like a commodity that is scarce and capped.” But, perhaps there is less here than meets the eye. The 320,158 metric tons of refined gold that the Ugandan mining ministry spokesman said could be produced from the new deposits in the country’s north-eastern corner would far exceed the 200,000 metric tons in above-ground gold that exist in the entire world today. One gold mining trade publication went so far as to suggest the Ugandan government may have been confusing metric tons with ounces in its projections.
The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 1 gram between March 28 and June 30, raising the possibility of Russia returning to the gold standard for the first time in over a century. If the country takes the next step, as has been proposed this week, to sell its commodities priced in rubles, these combined moves could have huge implications for the ruble, the US dollar, and the global economy.
Why is setting a fixed price for gold in rubles significant? By offering to buy gold from Russian banks at a fixed price of 5,000 rubles per gram, the Bank of Russia has both linked the ruble to gold and, since gold trades in US dollars, set a floor price for the ruble in terms of the US dollar. We can see this linkage in action since Friday 25 March when the Bank of Russia made the fixed price announcement. The ruble was trading at around 100 to the US dollar at that time, but has since strengthened and is nearing 80 to the US dollar. Why? Because gold has been trading on international markets at about US$62 per gram which is equivalent to (5,000 / 62) = about 80.5, and markets and arbitrage traders have now taken note, driving the RUB/USD exchange rate higher. So the ruble now has a floor to the US dollars, in terms of gold. But gold also has a floor, so to speak, because 5,000 rubles per gram is 155,500 rubles per troy ounce of gold, and with a RUB/USD floor of about 80, that’s a gold price of around $1,940. And if the Western paper gold markets of LBMA/COMEX try to drive the US dollar gold price lower, they will have to try to weaken the ruble as well or else the paper manipulations will be out in the open. Additionally, with the new gold to ruble linkage, if the ruble continues to strengthen (for example due to demand created by obligatory energy payments in rubles), this will also be reflected in a stronger gold price. What does it mean for oil? Russia is the world’s largest natural gas exporter and the world’s third largest oil exporter. We are seeing right now that Putin is demanding that foreign buyers (importers of Russian gas) must pay for this natural gas using rubles. This immediately links the price of natural gas to rubles and (because of the fixed link to gold) to the gold price. So Russian natural gas is now linked via the ruble to gold. The same can now be done with Russian oil. If Russia begins to demand payment for oil exports with rubles, there will be an immediate indirect peg to gold (via the fixed price ruble – gold connection). Then Russia could begin accepting gold directly in payment for its oil exports. In fact, this can be applied to any commodities, not just oil and natural gas. What does that mean for the price of gold? By playing both sides of the equation, i.e. linking the ruble to gold and then linking energy payments to the ruble, the Bank of Russia and the Kremlin are fundamentally altering the entire working assumptions of the global trade system while accelerating change in the global monetary system. This wall of buyers in search of physical gold to pay for real commodities could certainly torpedo and blow up the paper gold markets of the LBMA and COMEX. The fixed peg between the ruble and gold puts a floor on the RUB/USD rate but also a quasi-floor on the US dollar gold price. But beyond this, the linking of gold to energy payments is the main event. While increased demand for rubles should continue to strengthen the RUB/USD rate and show up as a higher gold price, due to the fixed ruble - gold linkage, if Russia begins to accept gold directly as a payment for oil, then this would be a new paradigm shift for the gold price as it would link the oil price directly to the gold price. For example, Russia could start by specifying that it will now accept 1 gram of gold per barrel of oil. It doesn’t have to be 1 gram but would have to be a discounted offer to the current crude benchmark price so as to promote take up, e.g. 1.2 grams per barrel. Buyers would then scramble to buy physical gold to pay for Russian oil exports, which in turn would create huge strains in the paper gold markets of London and New York where the entire ‘gold price’ discovery is based on synthetic and fractionally-backed cash-settled unallocated ‘gold’ and gold price ‘derivatives. What does it mean for the ruble? Linking the ruble to gold via the Bank of Russia’s fixed price has now put a floor under the RUB/USD rate, and thereby stabilized and strengthened the ruble. Demanding that natural gas exports are paid for in rubles (and possibly oil and other commodities down the line) will again act as stabilization and support. If a majority of the international trading system begins accepting these rubles for commodity payments arrangements, this could propel the Russian ruble to becoming a major global currency. At the same time, any move by Russia to accept direct gold for oil payments will cause more international gold to flow into Russian reserves, which would also strengthen the balance sheet of the Bank of Russia and in turn strengthen the ruble.Talk of a formal gold standard for the ruble might be premature, but a gold-backed ruble must be something the Bank of Russia has considered. |
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