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Bitcoin is back. Yes, it may have been in a mini-slump since the highs of November, but it appears to have begun a recovery of sorts, along with most of the cryptocurrency market. Having stood as low as $37,500 as recently as early March, it’s now up to $47,600, as of writing.
Given the complexity of the bitcoin and cryptocurrency markets, there are various reasons for this rise, from inflationary fears to institutional trading. However, one catalyst that generated plenty of market and media excitement recently was the suggestion, from a Russian lawmaker, that the Russian government could accept bitcoin as payment for oil and gas. Made on March 24, this sent the price of bitcoin rising (from just under $43,000) to nearly $45,000 the next day, as word of the Russian government’s mooted plans to spread throughout social media.
However, there are numerous reasons for suspecting that such a possibility won’t come to pass, not least because the illiquidity of the bitcoin market relative to Russia’s oil and gas sales makes the cryptocurrency impractical as a medium of exchange. However, assuming that the Russian government doesn’t mind sitting on a small stash of bitcoin until the cryptocurrency becomes easier to sell, its move (if it happens) could ignite a zero-sum race among governments towards accumulating more BTC.
Speaking during a press conference, Pavel Zavalny was discussing Russia’s likely policy of trading its oil and gas with ‘friendly’ countries, such as China and Turkey. Aside from being willing to accept the yuan and the lira, the head of the State Duma Committee on Energy also floated the possibility that the Russian government could accept bitcoin as payment.
“We have been proposing to China for a long time to switch to settlements in national currencies for roubles and yuan. With Turkey, it will be lira and roubles […] You can also trade bitcoins,” Navalny said.
That is the full extent of Zalvany’s remarks on bitcoins, which were made in the context of Russia needing to find alternative currencies for accepting payments for its energy exports. He said nothing else on the subject, and no Russian official has made similar remarks since.
Still, the paucity of details or confirmation didn’t stop Crypto Twitter from lighting up, with some accounts now talking as if Russia accepting bitcoin is 100% imminent.
Major media outlets have also been reporting Zalvany’s comments as the instigator of a significant increase in bitcoin’s price, as well as in the level of the overall cryptocurrency market. Indeed, since March 24, the market’s total cap has risen from approx. $2.035 trillion to $2.245 trillion.
And of course, if Russia does go ahead and begin accepting bitcoin as payment, it would be massive for the cryptocurrency market. For instance, news of El Salvador making bitcoin legal tender sent the price of BTC from $33,500 to $40,000 in early June, yet given the relative size of Russia (e.g. Russia’s economy is around 60 times larger than El Salvador’s), the impact of its government accepting bitcoin could be much, much larger.
However, it needs to be emphasized that the Russian government has provided no confirmation whatsoever that it will accept BTC. Yes, Pavel Zavalny is a relatively senior lawmaker within Russia, but he isn’t Vladimir Putin. More importantly, his remarks were made in the context of a press conference, so it’s hard to conclude whether they were made in passing and represented only an idea, or whether they represent actual government policy.
Heading to the top of the Russian governmental food chain, Putin himself is on record as saying that cryptocurrencies are too “unstable” to be used for energy trade. He made such remarks as recently as October in an interview with CNBC, having the following to say:
“It’s too early to talk about that for now because cryptocurrency can of course be a payment unit, but it is very unstable. To transfer funds from one place to another, yes, but I think it’s still premature to trade, especially to trade energy resources. It has a place to exist and can be used as a means of payment, of course, but oil trade, say, or other primary materials and energy sources — still, it seems to me, it is a bit early to talk about this,” he said.
Some might argue that the Ukraine-Russia conflict and the resulting sanctions have changed the Russian government’s calculus and that now it isn’t too “early” to talk about accepting BTC. Yet in terms of the actual capabilities of Bitcoin and the maturity of its market, nothing has significantly or fundamentally changed since November.
In other words, bitcoin remains largely unsuitable as a medium of exchange in energy trades, and the Russian government likely remains more than aware of this. Not only does its price fluctuate quite widely, but its market remains relatively small.
For instance, Russia’s oil and gas revenues totaled $500 million per day in October 2021, as well as $119 billion for the entire year. Imagine if a portion of this was in bitcoin, and then the Russian government sold the BTC it had received. Given that sales of between 18,000 and 28,000 BTC have caused 10% to 20% drops in its price, the Russian government selling several billion in BTC could have a big negative impact on the market.
On the other hand, it’s likely that, even if it did ‘accept’ BTC, the Russian government wouldn’t receive any. Recall that this offer of accepting bitcoin extends only to ‘friendly’ nations such as China and Turkey. Also, recall that China has completely banned cryptocurrencies and that Turkey has banned the use of cryptocurrencies for payments of goods and services. Is it therefore likely that the Chinese and Turkish governments are going to start accumulating bitcoin to pay for oil, particularly when the Russian government has said it will accept their respective national currencies as payment? Hardly.
Nonetheless, we can still happily speculate that the Russian government will go ahead and accept bitcoin as payment, and that, say, North Korea (which is a ‘friendly’ nation and does have a fondness for cryptocurrencies) will be one of a small handful of small countries spending BTC for oil and gas. Hypothetically — and “hypothetically” should be underlined — such acceptance could start an arms race among nations to accumulate bitcoin.
The United States, for instance, might deem it a risk that Russia has begun acquiring BTC and that it hasn’t, and so could begin building up its little stockpile. Then again, it could take the reverse tack and use Russia’s moves as an excuse to crack down hard on cryptocurrencies, as some commentators have suggested.
Only time will tell. That said, if the Zavalny episode teaches us anything for certain, it’s that the cryptocurrency community loves to jump the gun and become excited about things that haven’t even happened yet, and may never will. But at least it can comfort itself with the fact that the price of bitcoin has indeed risen, regardless of whether it’s done so partly based on hearsay and happenstance.
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