WEEKLY, July 13, 2024
WEEKLY, July 13, 2024
geopolitical scrambling and what that means for crypto
Hello, everyone, I hope you’re all well!
You’re reading the free weekly version of Crypto is Macro Now, where I reshare/update a couple of the articles from the week.
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In this newsletter:
Geopolitical scrambling
China, Belarus and Turkey
India and Russia
Taiwan, Poland and Saudi Arabia
And more
Some of the topics discussed this week:
CBDCs: goings on in mBridge, Russia, India, Bahamas, Iran, Ethiopia, Qatar
Another SAB 121 vote
Crypto funding
Blockchain activity
Elections, elections, elections and crypto
Those employment numbers
What’s behind the uneven reaction
Rate expectations and markets
Powell’s testimony
CPI: good news
Interest rate cuts are now a lock
The market reaction: strange, but not really
Gold and central banks
… and other stuff!
Geopolitical scrambling
There have been some deep moves on the geopolitical landscape over the past week. At face value, they seem like part of the firehose of chaos that is politics these days. But taken together, they are starting to suggest that the shift I’ve been talking about in this newsletter, with fragmenting military and economic alliances necessitating a rewiring of global finance, is starting to accelerate.
I’ll share just a few examples that jumped out:
China, Belarus and Turkey
Earlier this week, China and Belarus started joint military exercises just a few kilometres from the Polish border, just as the NATO summit kicks off in Washington DC. These are the first joint military exercises between the two powers in six years, and the first physically close to a NATO member.
This is being seen as a message to the west, which could be interpreted as China saying “we have friends”, and “careful with NATO expansion”. The relevance of this message is enhanced by the publication earlier today of a NATO communiqué calling China a “decisive enabler” of the war in Ukraine, and accusing China of posing “systemic challenges” to European interests and security. Those are astonishingly stern words from an organization that usually sticks to safe and careful language.
On the other hand, there is a remote possibility the timing of the exercises is coincidental, as the drills could be to showcase the accession of Belarus last week to the Shanghai Cooperation Organization (SCO), a Eurasia-led alternative to NATO. Then again, as an ambassador friend once told me, there are no coincidences in diplomacy.
(photo by DON JACKSON-WYATT via Unsplash)
For those not familiar, the SCO is a security alliance between member states China, Russia, India, Pakistan, Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan, Iran and now Belarus, covering almost 45% of the world’s population. For comparison, NATO covers roughly 12%.
Now, how’s this for a twist: Turkey wants to join the SCO, according to a statement from President Erdogan last week. But Turkey is a member of NATO. Can it be a member of both? Wouldn’t it have to come to the defence of one in the event of conflict with the other?
And which would Turkey choose if it had to do so?
Here’s an excerpt from President’s Erdogan statement:
“As Türkiye, we constantly draw attention to the shortcomings of the current international order.”
If it ends up choosing the SCO, does that mean we’d see joint military drills with China or with Russia on the Mediterranean? Unlikely, sure, but if things get tenser, it would be a strong lever to pull.
What’s more, this is occurring at a time of discord within NATO itself, with Donald Trump’s repeated threats to leave the organization now becoming more relevant, and Hungary (a member) flat out refusing to participate in the bloc’s plans to help Ukraine. Earlier this week, Hungary’s leader Viktor Orban paid a surprise visit to China and met with President Xi Jinping, just days after meeting with President Putin in Russia. That also sends a message.
There’s another twist: last week, the SCO held its annual summit, astonishingly under-covered by western media. Present were the leaders of not only Turkey, but also Qatar and one of the UAE emirates.
A hint at the overall tone of the event can be seen in remarks by the host, Kazakhstan President Tokayev:
“Today, the world is facing serious challenges due to unprecedented geopolitical contradictions and growing conflict potential. The architecture of international security is under threat, which could lead to dire consequences for all of humankind.”
This may be sabre-rattling. Or, it could be a new phase of positioning. The heavy emphasis on “international order” in recent statements from all sides, coupled with threatening language, rings loud.
India and Russia
Indian Prime Minister Narendra Modi visited President Putin this week, despite concerted efforts from several of India’s key allies to isolate the Russian leader. India has staunchly maintained its neutrality, refusing to participate in US-led sanctions and abstaining in UN votes on the Ukraine conflict. But the image of the two leaders hugging was obviously a staged moment.
The two countries are trade partners, with India depending on Russia for imports of weapons and oil. Trade with the US, however, is almost double Russia’s volume, as is that with China. The message sent feels like India telling the world it will not shape its trade policy to suit others, which in turn suggests a confidence in its own power base and ability to eventually defend itself.
India doesn’t have much to lose. The United States is not going to alienate a large ally in a region with simmering geopolitical tension. And Russia needs all the friends it can get, so it won’t ask the world’s largest democracy to choose sides. To express his gratitude, I mean friendship, Putin presented Modi with the Order of St Andrew, Russia’s highest civilian honour.
Rather, India has much to gain. It needs a friendship with Russia to counteract the growing influence of China in the region. It also needs a friendship with the US, well, again largely because of China and the implicit protection from the world’s largest military should border skirmishes escalate.
Plus, there’s the oil, which India can now pick up at a discount given the restricted channels for Russian exports. Since 2021, India has increased its imports of Russian oil by a factor of 20x. And the two parties have emerged from meetings this week with commitments to increase the $65 billion annual bilateral trade a further 50% by 2030.
A bigger takeaway from Modi’s Russia visit is the resilience of Putin’s power. You can read all the reports of idle Russian tankers (they have others), falling exports (not really) and unhappy citizens (probably) you want, but more than two years of sanctions has not brought the Russian economy to its knees, nor has it isolated Putin on the world stage.
This alone is likely to be enough to keep the war in Ukraine going for some time, sadly.
Meanwhile, it is giving Russia both the incentive and the time to get its alternative non-dollar payment rails in order. Bloomberg reported earlier this week that Russia’s foreign exchange market is now almost exclusively in yuan. India now pays for its Russian oil with the UAE dirham. According to the head of Russia’s Financial Markets Committee, the CBDC will be ready for cross border payments in the second half of next year. And a few days ago, Russia’s central bank governor publicly encouraged businesses to use other solutions including cryptocurrencies to facilitate payments with foreign trade partners.
Taiwan, Poland and Saudi Arabia
There’s plenty more:
The Financial Times reported on Wednesday that Taiwan is moving forward with a bill to boost infrastructure and overall preparedness in the event of military conflict.
At a press conference on Wednesday, Poland’s army chief insisted that the country must prepare “for full-scale conflict, not an asymmetric-type conflict”, while the deputy defence minister announced an 33% increase in the number of troops guarding the eastern border.
And reports emerged a few days ago of a threat earlier this year from Saudi Arabia to dump European debt if the G7 went ahead with plans to seize Russia’s frozen assets. Saudi Arabia insists it made no such threat, and tensions on that front seem to have calmed down (with full victory for Saudi Arabia as the plans were abandoned). My question is why this report is surfacing now.
And more
There is so much more I could add here, but I’m running out of space and time.
Kenya, for instance, needs to come up with $26 billion over the next decade to pay off existing foreign debts, now that domestic unrest forced it to abandon tax hikes. Where will it get that money from? The IMF is preaching tough love, including devaluations which would be political suicide for the current government, so they may end up turning to China for help.
Weird weather is impacting crops and supply chains, which in turn could fuel more unrest in already unstable regions.
And deepening conflict in some regions combined with the withdrawal of western companies is pushing key mineral exporters further into the open arms of Russian influence.
The bigger picture is one of not just shifting alliances, but also of changing infrastructure. In this, the crypto ecosystem is likely to play a role in offering alternative payment rails, even if temporary. Remember the recommendation from the Russian central bank mentioned above: use cryptocurrencies for cross-border payments if necessary. As access to dollars becomes increasingly politicized in the fragmenting landscape, we will see more of this.
And of course, as global tension mounts, the appeal of sovereign stores of value shines brighter.
HAVE A GREAT WEEKEND!
You may think I’ve lost my mind, but hear me out: the Paddington Bear movies are excellent. I had absolutely zero interest in seeing them, I confess. Not my sort of thing, I found the trailer annoying, the whole thing felt a bit saccharine. But when visiting my 21-year-old daughter in Edinburgh a few weeks ago, she was adamant I see them, so we curled up and watched the first one together (I think this was the fourth time she was seeing it). And then we watched the second one, which was even more enjoyable. Because it turns out that they are totally charming, visually beautiful, and have an amazing cast. I would, much to my surprise, happily watch them again.
DISCLAIMER: I never give trading ideas, and NOTHING I say is investment advice! I hold some BTC, ETH and a tiny amount of some smaller tokens, but they’re all long-term holdings – I don’t trade.