So What About Cryptocurrencies? – Analytics by Paul Goncharoff

Just before this weekend, at a lovely outdoor cafe near Metro Novoslobodskaya, I breakfasted with a very respected, rather well heeled, low-key Russian crypto-nerd/financial maven (we’ll call him Slava). This Moscow breakfast consisted of coffee, cigars and herring. I opted for a croissant, but there is no telling where tastes can run for some. 

The purpose of meeting with Slava, who has been a digital programmer and developer since the early days of this century was for me to get a clearer simplified picture on the integration plans for the digital ruble with the yuan, and where might cryptocurrencies play a role, if any. I learned from him that the Central Bank wants the digital ruble to be capable of engaging directly with foreign platforms of other virtual currencies from those central banks having operable CBDC’s.

Going further, although the “conductor” of the Russian ruble CBDC will be the Central Bank of Russia, it is also planning to enable multi-level integration not only from central bank to central bank but between various counterpart ministries or departments with the relevantly applicable sovereign counties. In other words, the equivalents for the Ministry of Economic Development, the Ministry of Trade, the Ministry of Finance, and so on, that are key to the digitization of the economy.

It is worth noting that the digital ruble as it is being planned today provides for maintaining intermediaries (banks and financial institutions) despite the centralization of the platform in the hands of the Central Bank. Russian individuals or companies will not be able to open accounts or have e-wallets on the platform. Today it is envisioned that the testing phase for the digital ruble will take all of 2022 with an anticipated rollout by early 2023.

I listened and absorbed what Slava said, and asked him,

“So, the digital ruble is essentially the same as the current ruble but streamlined, de-dollarized, simpler, faster to manage without the burden of external or third party steps, and with immediate smart-contract-like accountabilities?”

He smiled, swallowed a chunk of herring, and simply said,

“Yup, and a geometric increase of efficiencies across the board, especially with international integrations, and the ability to do free market business without a hegemon big brother taking their two cents gatekeeping toll every time. You must be aware though, that this will not be of benefit to individuals, at least not for the foreseeable future if at all.”

The last of the oily herring thankfully disappeared, and I asked,

“So what about cryptocurrencies?”

Here Slava’s reply was surprising.

“You know of course the term FOMO (Fear Of Missing Out). It most often is used when describing retail speculators scrambling after a stock, or cryptocurrency after some major dramatic moves up or down. Chasing the horse after it has run from the stable. In my opinion, there will come an inflection point among central banks worldwide when the realization hits them that printing or even issuing digital dollars, Euros, Yuan, or Rubles will no longer hold water. The data shows this is now an irreversible process that might be delayed or attempts made to regulate, but it is too late. It may be in a decade, or it may be next week, but the fact remains that currency value erodes and are eventually dissipated when in a centralized hierarchy within any political-economic system.”

He went on about inflation and politically managed economic information to fit current scripts, all of which was plausible if a bit “alternative”. Finally, we circled back to “So what about cryptocurrencies?”. Slava, ever pragmatic made the following prediction,

“If you can’t beat ’em, join ’em (to use a tried and true Americanism). Eventually, not just central bankers, but politicians and financial institutions will wake up to the fact that decentralized cryptocurrencies such as Bitcoin, Ethereum, and a very few other selectively related stores of value are the new gold standard of the world. We have seen the first small glimpses these past two months with private and publicly traded financial institutions buying into key Defi crypto’s with finite caps like BTC, as well as the uncapped (so far) main use-case platform of ETH, along with DOT and similar ETH-like crypto’s. When that FOMO happens, it will make the eruption of Krakatoa seem like a birthday sparkler with fiat dumping into crypto, and who knows then how high it will drive the cryptocurrencies.”

He went on to conclude that there will come a point, probably dictated by actual inflation, when not only asset managers and financial services companies dive into the main cryptocurrencies, but central banks will be forced to as well if only to protect the overissuance of their respective fiat currencies.

“So you see, I fully expect several central banks to FOMO, and this may very well send the major crypto’s through the stratosphere to retain some value in a hyperinflationary currency environment. Quite simply, there is just not enough digitally agile Gold or Silver or other metals out there that would fit the need as some key crypto’s do, although the CB’s have been building up their reserves of the precious metals these past few years.”

I thought this chat might be interesting to write about, so I asked Slava whether I could mention him by name.

“Nyet (no), no way in hell! I do not wish to spend the next few weeks or the next decade, whatever turns out to be the timeline, being referred to as a fruitcake or a nutjob. Nonetheless, between us, I do not see another alternative in the fullness of time other than fiat, CBDC’s, and the various central banks eventually going the way of the Dodo, replaced with Defi (decentralized finance) using cryptocurrencies and hopefully in that way a freer market of opportunity for all.”

One thing is certain, in the fullness of time we will see for ourselves, feel it on our own skin, and have a cry or a laugh. I’ll hedge my bets and keep adding religiously, albeit fractionally to my crypto assets as well as hard assets, especially when they periodically crash… they eventually energize and do the FOMO dance, the question as always is when.

Analyst Paul Goncharoff, Moscow 

Ru-Main, 12.06.2021

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