Western sanctions have already frozen roughly half a trillion dollars’ worth of bank deposits belonging to Russia’s central bank.
Now, the U.S. and its allies are going after Russia’s roughly $140 billion in gold reserves.
The White House has announced that existing sanctions also cover any transaction with the country’s central bank involving gold.
Russia has the world’s fifth-largest stockpile of the precious metal. But if it can’t find anyone to trade that gold with, it’s not much use.
And just last week, the Russian government said it would accept bitcoin (BTC) in exchange for its oil and gas exports.
Which raises some tantalizing questions in your editor’s mind…
What would happen if the Russian state held on to some of those bitcoins as a new type of reserve asset?
Could it be the start of a wider move to use bitcoin instead of gold as a store of national wealth?
And if that happened, what would it mean for bitcoin’s price?
We’ll dive into these questions in today’s dispatch.
But think about it…
Bitcoin started trading in 2010. Individuals kicked off the adoption cycle. They began plugging their personal balance sheets into the crypto to protect and grow their wealth.
A decade later, executives at MicroStrategy (MSTR), Tesla (TSLA), and other publicly traded companies started doing the same thing with corporate balance sheets.
BitcoinTreasuries.net keeps a running tally of corporate adoption. Its figures show that 58 publicly traded companies and five private companies now own nearly $69 billion worth of bitcoin as a treasury reserve asset.
And colleague and renowned crypto investing expert Teeka Tiwari has predicted that the next phase of adoption will be at the national level. As he put it…
I believe central banks will put bitcoin on their balance sheets soon. And it’ll completely change the game.
Just as U.S. Treasury bonds, European government bonds, and gold are major reserves today… bitcoin will become a big part of a country’s reserves in the future.
And this makes sense when you think about the nature of bitcoin.
The crypto network’s code caps supply at 21 million bitcoins.
And to mine new bitcoins, you need powerful computers and the energy to run them. So these coins are expensive to produce.
That makes bitcoin a kind of “digital gold.” And like gold, it’s inflation-resistant.
But bitcoin also has several advantages over gold.
Just as you can break up a dollar into 100 cents, you can divide a bitcoin into 100 million satoshis (named after bitcoin’s pseudonymous creator, Satoshi Nakamoto). This helps with payments.
You can’t divide gold as easily.
And bitcoin is easier to transport than gold. It’s a purely digital currency. So you can send it anywhere in the world in minutes. All you need is a phone and an internet connection.
It’s also decentralized. This makes it hard to stop someone – or some government – from using the network.
And thanks to some neat cryptography, bitcoin is impossible to counterfeit. So you don’t have to go through an expensive “assay” – or purity verification – as you do with gold when you accept it as payment.
It’s raised more than $54 million through donations in cryptos including bitcoin, ether (ETH), and stablecoin Tether (USDT) since the Russian invasion began just over a month ago. (A stablecoin is a crypto pegged to the value of a fiat currency.)
Government officials in Kyiv posted these crypto wallet addresses to Twitter…
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And using these addresses, folks around the world could send funds directly to the Ukrainian government.
It’ll likely spend all these funds to defend itself against Russia. So it’s not holding them in reserve. But it’s another example of a government using bitcoin.
Other national governments are turning to bitcoin too…
Last fall, El Salvador in Central America became the first country to make bitcoin legal tender. And according to BitcoinTreasuries.net, it holds 1,691 bitcoins – worth about $80 million at writing – in reserve.
In January, a Republican state senator for Arizona, Wendy Rogers, introduced legislation to make the crypto legal tender.
This would allow Arizonans to settle public debts and pay state taxes with bitcoin.
In February, a Democrat state senator for California, Sydney Kamlager, introduced a similar bill. It would allow California to accept crypto payments for state services such as permits and driver’s licenses.
And Colorado Governor Jared Polis says his state will accept bitcoin as payment for state taxes and fees by summer.
These are all still baby steps.
But if Teeka is right, they’ll lead to growing acceptance of bitcoin by not just individuals and corporations, but also by state and national governments.
It’s hard to say for sure.
But figures from gold industry trade association the World Gold Council show that central banks hold about 35,000 metric tons of gold – about one-fifth of all the gold ever mined.
At writing, a metric ton of gold is worth $61.4 million.
That puts the value of central banks’ gold reserves at $2.2 trillion.
That’s about 2.4 times more than the value of all the bitcoins in circulation, which together are worth about $900 billion.
So even if central banks’ bitcoin reserves grew to just half the value of their gold reserves, it would add another roughly $1 trillion to bitcoin’s market value.
And that alone would more than double the price of bitcoin.
So if you haven’t already bought some bitcoin, now’s a great time. Just remember Teeka recommends you put no more than 10% of your overall portfolio into it.
I’m writing to you from the Mandarin Oriental hotel in Washington, D.C.
I’m here ahead of the third annual Legacy Investment Summit. It’s where your fellow subscribers come to hear from Teeka, Jeff Brown, Dave Forest, Nomi Prins, and the rest of the team about our top moneymaking ideas.
It’s particularly exciting this year because we had to cancel our summits in 2020 and 2021 due to the pandemic.
If you’re reading this and made the journey to be with us in D.C., I’ll see you at the cocktail reception at 5:30 p.m. today.
And if you didn’t make it, don’t worry. I’ll update you on the first day of the summit tomorrow.
Until tomorrow…
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Chris Lowe
March 30, 2022