It has been difficult to process the events of the last week. Few young people alive today, myself included, ever expected to see war in Europe in their lifetime. Now that we are watching one unfold before our very eyes, it seems strangely unreal.
While the global community reels from the shock of what many believed to be unthinkable, the effect on markets has been dramatic and obvious. The rouble lost 25% of its value in response to the announcement of sanctions, and markets worldwide have taken a tumble.
Not everything has gone south however. Russia is one of the world’s largest suppliers of aluminium and the closure of Russia’s biggest producer Rusal, sent prices soaring. Russia also supplies some 10% of the world’s nickel, and nickel has seen similar rises. The crypto markets have also seen rises across the board over the past week, although here the connection is a little less obvious.
To understand the connection between crypto markets and geopolitical instability it’s useful to look at gold as a proxy. Gold is generally considered a safe store of value in times when geopolitical instability threatens stock markets. This is because fiat money – our £’s and $’s – are likely to be less in demand, and less likely to be trusted, when geopolitical instability weakens trade between countries, and even threatens the collapse of entire economies. Trade and trust are mutually reinforcing here: a lack of trust erodes trade, and a lack of trade erodes trust. No surprises then that gold prices rose 6% during February. As the recently deceased anthropologist David Graeber writes in his seminal work Debt: The First 5000 Years:
“Bullion predominates, above all, in periods of generalized violence. There's a very simple reason for that. Gold and silver coins are distinguished from credit arrangements by one spectacular feature: they can be stolen. A debt is, by definition, a record, as well as a relation of trust. Someone accepting gold or silver in exchange for merchandise, on the other hand, need trust nothing more than the accuracy of the scales, the quality of the metal, and the likelihood that someone else will be willing to accept it. In a world where war and the threat of violence are everywhere…there are obvious advantages to making one's transactions simple….For much of human history, then, an ingot of gold of silver, stamped or not, has served the same role as the contemporary drug dealer's suitcase full of unmarked bills: an object without a history, valuable because one knows it will be accepted in exchange for other goods just about anywhere, no questions asked. As a result, while credit systems tend to dominate in periods of relative social peace, or across networks of trust (whether created by states or, in most periods, transnational institutions like merchant guilds or communities of faith), in periods characterized by widespread war and plunder, they tend to be replaced by precious metal.”
With inflation in the UK predicted to be around 4%, and in the US to be over 7% in 2022, the transition from credit to precious metal is magnified. It makes less sense to hold onto £’s and $’s if they are going to lose 4-7% of their value over the course of the year.
Bitcoin has, controversially, been referred to as digital gold for much the same reason. If trust and trade is low, then it helps to have a trusted and verifiable currency with which to store value. Bitcoin has some of the characteristics of gold – it’s secure, it’s impossible to fake and it’s finite –all of which make it a good bet in times of stock market uncertainty.
But there’s another reason why crypto markets have rallied in the past week and that has to do with the economic sanctions that have been placed on Russia by the international community. If companies and billionaires are having their assets and payments systems (such as SWIFT) frozen, then they will look to other ways to get their money out of the country or to make international payments, and cryptocurrencies provide a back door. This week has seen a bounce back across crypto markets with Bitcoin rising by over 15% in the last five days. As is so often the case, the alt-coin market has not been far behind.
However, many ethical investors are likely to baulk at the thought of investing for profit during times of war, particularly when that involves indirectly facilitating the dealings of dubious money. Nor have the environmental problems surrounding cryptocurrency gone away – as explained in a previous article on $BEACH’s Medium page.
$BEACH provides a potential outlet for those who might wish to ride the crypto recovery without getting into bed with Russian oligarchs or fuelling climate change. Not only is $BEACH BSC a low-emissions crypto, but its 15% transactions tax makes it an illogical choice if you’re a billionaire looking to shift money across borders. In addition, The Beach Collective have pledged to make a donation to humanitarian organisation Nova Ukraine from our #BlueCarbon fund – so your purchase will directly support injured and displaced Ukrainians.
The Beach Collective are united in their solidarity with the Ukrainian people wish a speedy end to this cruel and senseless war.