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Author Topic: Russia Prepares To Buy Up To $10 Billion In Bitcoin To Evade US Sanctions  (Read 584 times)
Hydrogen
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January 16, 2019, 03:03:39 AM
 #1

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While the market has been increasingly focused on the rising headwinds in the global economy in general, and China's economic slowdown in particular, while the media is obsessing over daily revelations that Trump may or may not have colluded with Russia to get elected, a far more critical, if underreported, shift has been taking place over the past year.

As we reported in June, whether due to concerns over draconian western sanctions and asset confiscations following the poisoning of former Russian military officer Sergei Skripal, or simply because it wanted to diversify away from the dollar, Russia liquidated virtually all of its Treasury holdings in the late spring and early summer, in the process sparking a major repricing of the 10Y US Treasury, whose yield jumped from 2.70% at the start of April to a high of 3.10% in May, a move which economists were struggling to explain at the time.

The obvious next question is what did Russia do with the proceeds, and it came as little surprise that, as we wrote back in July, as Russia was selling nearly $100BN worth of Treasurys, it was aggressively buying gold.

In addition to gold, the Kremlin also instructed the Russian finance ministry to load up on Yuan, something which we noted at the end of September, when we showed the surge in reserves allocated to the Chinese Yuan.

As part of its reallocation away from the dollar, Russia also bought a substantial amount of other non-USD currencies, and according to a recent report, the money pulled from the dollar reserves was redistributed to increase the share of the euro to 32%, the yuan to 14.7%, and another 14.7% of the portfolio was invested in other currencies, including the British pound (6.3%), Japanese yen (4.5%), as well as Canadian (2.3%) and Australian (1%) dollars.

And now, the final missing piece of Russia's massive capital reallocation out of the petrodollars has emerged, after the Telegraph reported that Moscow is preparing an investment in Bitcoin in a bid to tackle US sanctions, according to a Russian economist with close ties to the Kremlin.


According to Vladislav Ginko, an economist at the state-funded Russian Presidential Academy of National Economy and Public Administration, the government is taking steps to minimize the impact of US sanctions that have hit the Russian rouble by replacing some of its US dollar reserves with the world’s most popular cryptocurrency.

Quoted by The Telegraph, Ginko said he believes Russia’s de-dollarization decision is fundamentally a move to "protect its national interests" due to a possible interruption of “US nominated payments flows for Russian oil and gas” and claims that the investment in bitcoin could be as much as $10bn (£7.8bn); a material enough amount to send the price of bitcoin sharply higher.

When would Russia's next capital reallocation take place? According to the Russian economist, the purchases could start as soon as next month.
Cryptocurrencies have seen a surge of interest in Russia, where President Putin has expressed an interest in the digital assets in recent months. Ginko believes Bitcoin and the wider cryptocurrency industry now account for 8% of Russia’s GDP, and investment to bolster the country’s reserves with Bitcoin could start as soon as February.

“[The] Russian government is about to make a step to start diversifying financial reserves into Bitcoin since Russia [is] forced by US sanctions to dump US Treasury bonds and [take] back US dollars,” Ginko said.

“These sanctions and the will to adopt modern financial technologies lead Russia to the way of investing its reserves into Bitcoin.”

While the Central Bank of Russia has yet to confirm or deny the report and has yet to publish official plans, it said in a statement to The Daily Telegraph that it "publishes information on the foreign assets management with a six-month lag". As noted above, an asset reallocation would be expected by a country which has been aggressively de-dollarizing  by boosting its holdings of the euro, Chinese renminbi and Japanese yen.

Speaking to The Telegraph, eToro senior market analyst Mati Greenspan said that there is “definitely an interest from the [Russian] government to do this”.

What is most surprising is the sheer size of Russia's proposed reallocation: the alleged plan to invest in the digital asset would see the state acquire almost a sixth of the world’s Bitcoin float, though since the buy order would push the price and valuation sharply higher, that would reduce Russia's purchasing power.

Furthermore, since the Russian government would be unable to open an account with an exchange to buy cryptocurrencies, any investment plans could involve the setup of an “intermediary cryptocurrency” that can then be exchanged for Bitcoin. The new cryptocurrency would have to be offered by a broker such as Sberbank, a state-owned bank, and would act as what’s known as a utility token.

“The proposal that I understand is on the desk of the finance minister at the moment is to create some sort of intermediary cryptocurrency,” Greenspan said.

Putin has been a fan of cryptos for years, after he personally met with Vitalik Buterin, the 24-year-old Russian founder of cryptocurrency Ethereum in 2017 to discuss possibilities in the sector, and has also met personally with the Ethereum head in recent months according to The Telegraph.

“We know that Vladimir Putin is a big advocate of blockchain technology,” said Greenspan.


“Obviously he doesn’t like the sanctions that have been placed on him and he’s already said that these types of sanctions are going to lead to de-dollarisation. This is more or less the direction the Russian government is going.”

News of the potential Russian reallocation provided a sharp boost in crypto prices this morning, which have resumed their drift in the past week after bitcoin once again dipped below $4000 with many experts, the same ones who never anticipated bitcoin could reach $20,000 in December 2017, predicting that the crypto space is doomed.

If Putin indeed plans on buying up nearly 20% of the outstanding bitcoin float, not only will reports of bitcoin's imminent death prove to be greatly exaggerated, but should the market attempt to frontrun Russia and/or should the total float shrink dramatically, the third, and biggest cryptobubble yet is about to be unleashed, something which will likely be facilitated by Chinese capital outflows which as we reported earlier, appear to have returned, just as they did shortly before bitcoin exploded from $200 to $20,000.

https://www.zerohedge.com/news/2019-01-14/russia-prepares-buy-10-billion-bitcoin-evade-us-sanctions

....

For those who don't want to read the source, the gist of the story says russia sold off a massive stake of its US treasury holdings in 2018. With the capital raised from the sale, they bought gold, yuan, euro and may seek to purchase bitcoin. According to sources russia may be poised to purchase as much as $10 billion dollars in bitcoin starting in february of 2019.

If this is true we could see a respectable appreciation in the value of bitcoin and crypto currencies starting from february onwards. I hope publishing this news story helps zerohedge to shed the negative reputation it has earned for reporting on crypto news.

And I really hope this story pans out. It would be nice to see people excited and enthusiastic about crypto again.

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January 16, 2019, 03:31:06 AM
Merited by dbshck (4)
 #2

For those who don't want to read the source, the gist of the story says russia sold off a massive stake of its US treasury holdings in 2018. With the capital raised from the sale, they bought gold, yuan, euro and may seek to purchase bitcoin. According to sources russia may be poised to purchase as much as $10 billion dollars in bitcoin starting in february of 2019.

Like many things that appear on ZH, this should be taken with a grain of salt. The report they're citing has been floating around for a week or so. It seems to be nothing more than the speculations of one economist/professor who happens to be employed at a state-funded university. He doesn't seem to have any actual insight into policymaking decisions, as far as I can tell.

Quote
Furthermore, since the Russian government would be unable to open an account with an exchange to buy cryptocurrencies, any investment plans could involve the setup of an “intermediary cryptocurrency” that can then be exchanged for Bitcoin. The new cryptocurrency would have to be offered by a broker such as Sberbank, a state-owned bank, and would act as what’s known as a utility token.

Why couldn't they just officially legitimize Bitcoin exchanges and stop forcing them off-shore? At least as a complement to this strategy. There are lots of Bitcoin users in Russia and other CIS countries who would be happy to deposit coins at a Russia-sanctioned exchange.

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January 16, 2019, 06:50:48 AM
Merited by LeGaulois (1)
 #3

The Russian government will take steps to circumvent international sanctions. However, they will do it quietly and even officially deny. Therefore, we are unlikely to see it in the news. I think that they have already taken and will take such measures. Including will use cryptocurrency and in particular, Bitcoin. It is not by chance that Russia helped Venezuela in creating their centralized El Petro cryptocurrency. In this way, ways were developed to circumvent international sanctions.

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January 16, 2019, 02:08:27 PM
Merited by dbshck (4)
 #4

According to sources russia may be poised to purchase as much as $10 billion dollars in bitcoin starting in february of 2019.
If this is <snip>
Yeah, sounds like pure speculation then, just like if everyone in the world bought just one ounce of silver, the price would skyrocket to $50,000.  I used to read crap like that on sites like ZH back in 2012 or so.  Meanwhile gold is still under $1300 where it's been for a long time now, and that's evidently after Russia did this buying, correct?  So I would definitely take anything written on ZH with more than a few grains of salt--I learned that a long time ago after reading nonstop gold & silver hyping on that website.  If you wonder why they have a bad reputation, it's basically because they reinforce the constant shilling of precious metals dealers--how many times can I read that hyperinflation is coming to the US and the dollar is going to crash and that gold & silver will be the new reigning currency before I get jaded?

Meanwhile, Venezuela is actually experiencing hyperinflation and I don't recall anyone predicting that on ZH 7 years ago, nor have I read much about Venezuelans turning to gold, silver, or crypto en masse.  Some of them are using crypto, but I think most are using the revalued currency or a foreign one.

Anyway, thanks for posting the article, Hydrogen.  Even if it's from ZeroHedge it still has at least entertainment value.

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January 16, 2019, 02:58:39 PM
 #5

@Hydrogen Where were you these days?  Smiley

With zerohedge, there are things to take and leave. Certainly, Russia has diversified its assets with other currencies and also gold, but as for Bitcoin, I would love to see that. Yep, we will notice a good increase during a month
There are several countries adopting this same strategy to be able to be independent of the dollar and therefore on the USA and its policy. China has done the same in the Sino-American conflict, as Iran too, or where it is on the way. Basically, this is a good method (perhaps not with BTC) but it would be nice if more countries did the same.


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January 16, 2019, 06:04:14 PM
 #6

If this is true we could see a respectable appreciation in the value of bitcoin and crypto currencies starting from february onwards. I hope publishing this news story helps zerohedge to shed the negative reputation it has earned for reporting on crypto news

With such stories ZeroHedge kills its reputation (if there anything left to kill, of course)

And I really hope this story pans out. It would be nice to see people excited and enthusiastic about crypto again.

And the price shooting to the sky, right?

As much as I want to see that myself, there is not much we can actually hope for. Well, we can indeed hope, but that's pretty much all. We should rather pray that the price won't crash lower again and then again, and with the expansion of Bitcoin's use as a device for value transfer (as I myself no longer believe in Bitcoin as a means of payment), we will see more consistent and steady growth in the coming months and years

Regarding the ZeroHedge piece specifically, it is not something you should take seriously. With that said, though, just today I've read an analysis about how much the Central Bank of Russia lost in its currency operations during the last two years (to the tune of 14B dollars if you are curious). So I wouldn't in fact be taken completely aback or shocked if they actually did something the article mentions

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January 16, 2019, 08:37:05 PM
 #7

Like many things that appear on ZH, this should be taken with a grain of salt.

Make that a bag, but right now I won't blame them this time for starting this as they are not the source and even some newspapers that claim to be serious have the story covered.

https://www.telegraph.co.uk/technology/2019/01/14/russia-plans-tackle-us-sanctions-bitcoin-investment-says-kremlin/
Notice the "Kremlin economist" part.

Ironically, CCN (not CNN) , the mother and father and grandparents of all shady news are screaming fake news!!
https://www.ccn.com/fake-news-why-russia-is-probably-not-planning-a-10-billion-bitcoin-buy/

However, they will do it quietly and even officially deny. Therefore, we are unlikely to see it in the news.

Of course, it makes sense to let some university professor brag to the whole world that the Russian government is planning to buy bitcoins worth 10 billion in February.  Grin
I mean, I will do the same if I see a shop selling an iphone xs 10$ and only 5 left, I would first call everyone I know, post on FB, WhatsApp, telegram and after I make sure at least half of the country knows about that bargain I will try to buy it.

Meanwhile, Venezuela is actually experiencing hyperinflation and I don't recall anyone predicting that on ZH 7 years ago, nor have I read much about Venezuelans turning to gold, silver, or crypto en masse.  Some of them are using crypto, but I think most are using the revalued currency or a foreign one.

Even if they would want to turn to gold, silver, bitcoin, bananas or leva....you need money for that.
With a median wage of 2.2$ and 5$ in food stamps what can you do? Buy 1/20 of a gram a month?
In a country where every cent matters, it won't happen.

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January 16, 2019, 09:04:32 PM
 #8

Okay, guys, I've read the whole article and it was a fun reading. This part was particularly hilarious (as well as ridiculous and preposterous, for the record):

Quote
“We know that Vladimir Putin is a big advocate of blockchain technology,” said Greenspan

I don't know where this Greenspan got such info, but I know for certain that Putin is not using Internet and doesn't even have a smartphone. So there is no way he can be "a big advocate of blockchain technology" as he is simply not familiar with it. On a few occasions, when asked about Bitcoin, he just said that it is a risky asset which can potentially be used in certain areas. That's what his "advocacy" essentially comes down to

As they say, love it or leave it

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January 16, 2019, 09:32:45 PM
 #9

Basically, this is a good method (perhaps not with BTC) but it would be nice if more countries did the same.
They can always choose to launch their own crypto currencies that are backed by something to make it have some form of a base value. Venezuela did it already, and I'm sure more will follow in the coming years.

I actually hope they avoid Bitcoin. The less government involvement the better it is for everyone. Bitcoin could be sucked into a war that it has nothing to do with, all because a certain country owns dozens of billions worth of it.

We have never seen any government actually attempt to attack Bitcoin, and I prefer to have everything stay like that. I rather see them stick to gold and other means of preserving value over longer periods of time.

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January 16, 2019, 10:58:12 PM
 #10

@deisik

There was a news a year ago or 2 about Putin supporting/endorsing/liking (call it as you want) Etherum. I remember he invited Vitalik to Russia for (I don't remember why)
Now in 2019, they turn it into a "he is a big advocate". In 2025 they will maybe say Putin is the co-founder  Grin

Edit: That was the news I was talking about https://cointelegraph.com/news/suddenly-vladimir-putin-meets-vitalik-buterin-endorses-ethereum

@BitHodler
I didn't follow Venezuela and its crypto so I can say I know nothing about it. Does it have a fixed value?
From a speculative side it could be something good for BTC, other than that yeah I agree with you, better to have any govt. out of the game

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January 16, 2019, 11:31:05 PM
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if that happens there will be a tremendous price increase in bitcoin, if that happens I am very sure the price of bitcoin can return to $ 10,000 quickly. I hope this is not nonsense  Roll Eyes

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January 17, 2019, 07:11:23 AM
Last edit: January 17, 2019, 07:04:02 PM by deisik
 #12

@deisik

There was a news a year ago or 2 about Putin supporting/endorsing/liking (call it as you want) Etherum. I remember he invited Vitalik to Russia for (I don't remember why)

I actually saw it in the news

It was in St. Petersburg before the Russian presidential elections of 2018. So you guess why Vitalik was invited to Russia. Their were rumors also that he was offered a job, though personally, I don't believe in that as these rumors were basically aimed at the same audience that his invitation was, i.e. to make it look like Putin is pro-crypto, while in reality he doesn't give a slightest fuck about it. Typical doublespeak, doublethink, call it as you like. In other words, don't overthink it

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January 17, 2019, 09:43:16 AM
 #13

This is good news and I hope that with this news it can pump the price of Bitcoin which has now fallen, but will Russia be able to control the price of Bitcoin in the future, given the amount they invest in buying Bitcoin is quite large.
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January 17, 2019, 11:09:33 AM
 #14

We have never seen any government actually attempt to attack Bitcoin, and I prefer to have everything stay like that.

And yet all the board is full of conspiracy theories on how banks and the government are plotting against BTC.

There was a news a year ago or 2 about Putin supporting/endorsing/liking (call it as you want) Etherum. I remember he invited Vitalik to Russia for (I don't remember why)
Now in 2019, they turn it into a "he is a big advocate". In 2025 they will maybe say Putin is the co-founder  Grin

Putin is known to dislike smartphones or simple mobile phones, but that didn't prevent him from giving a Russian made yotaphone to XI Jinping as a gift in order to promote the company.

So it doesn't matter if he dislikes or likes cryptos, this guy will do anything if he considers it will serve his ambitions.
But trusting Putin to keep his stance on something for more than a few years is a losing bet.

Ps...
What if Putin is Satoshi?  Shocked

I didn't follow Venezuela and its crypto so I can say I know nothing about it. Does it have a fixed value?

Yes, it's always at the value Maduro wants.
Venezuela crypto, Petro's price is changed (again), this time 300% up

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January 17, 2019, 12:33:38 PM
 #15

Ps...
What if Putin is Satoshi?  Shocked

Welp, that would perfectly explain his position as a "big advocate of blockchain technology". I think you may have cracked the code lmao.

But yeah, regardless of the source, Russia hasn't even taken a clear stance on crypto right? I find this to be highly unlikely. Would they really risk that much money on a volatile asset? If this really happens though, it'll fast track Bitcoin's ascent to reserve currency status lol.

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January 17, 2019, 12:43:40 PM
 #16

The Russian government will take steps to circumvent international sanctions. However, they will do it quietly and even officially deny. Therefore, we are unlikely to see it in the news. I think that they have already taken and will take such measures. Including will use cryptocurrency and in particular, Bitcoin. It is not by chance that Russia helped Venezuela in creating their centralized El Petro cryptocurrency. In this way, ways were developed to circumvent international sanctions.

I saw someone posted similar article from another website and you're correct. If this has to happen we will not see or hear it in the news until it has happened. so people can either choose to believe these rumors or choose to look somewhere else but if it does happen that will be a great news for everyone.
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January 17, 2019, 12:52:47 PM
 #17

how to know if this is real, this value is too high to buy btc, would be a big uncontrolled pump, is there more sources on this?

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tinkerr99
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January 17, 2019, 01:22:33 PM
 #18

Of course, you shouldn’t immediately believe, but again, if it is already announced on TV and in official sources, then we can talk about something. If Russia buys 10 million bitcoins, the price should obviously rise.  And then others are possible.
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January 17, 2019, 02:15:41 PM
 #19

how to know if this is real, this value is too high to buy btc, would be a big uncontrolled pump, is there more sources on this?

Common sense. Any entity seriously interested in buying a huge amount of Bitcoin won't ever signal that like this.

If you buy in silently, which is what most large scale investors do, depending on the amount of coins, it's a process that can take months, perhaps years, and then you also have to hope that the price doesn't pump in meantime. That being said, this proves a strong demand factor for Bitcoin backed futures where you can settle an agreement price and don't have to worry about pumps anymore.

And most of the action nowadays happens in the OTC market. Spot exchanges are a joke. One OTC trade covers Coinbase's entire daily spot volume.

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January 17, 2019, 05:35:54 PM
 #20

For those who don't want to read the source, the gist of the story says russia sold off a massive stake of its US treasury holdings in 2018. With the capital raised from the sale, they bought gold, yuan, euro and may seek to purchase bitcoin. According to sources russia may be poised to purchase as much as $10 billion dollars in bitcoin starting in february of 2019.

Like many things that appear on ZH, this should be taken with a grain of salt. The report they're citing has been floating around for a week or so. It seems to be nothing more than the speculations of one economist/professor who happens to be employed at a state-funded university. He doesn't seem to have any actual insight into policymaking decisions, as far as I can tell.

Quote
Furthermore, since the Russian government would be unable to open an account with an exchange to buy cryptocurrencies, any investment plans could involve the setup of an “intermediary cryptocurrency” that can then be exchanged for Bitcoin. The new cryptocurrency would have to be offered by a broker such as Sberbank, a state-owned bank, and would act as what’s known as a utility token.

Why couldn't they just officially legitimize Bitcoin exchanges and stop forcing them off-shore? At least as a complement to this strategy. There are lots of Bitcoin users in Russia and other CIS countries who would be happy to deposit coins at a Russia-sanctioned exchange.

This is exactly what I thought. I wouldn't take it completely seriously until this really happens or Putin mentions it on TV.
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