Are we witnessing a reversal in globalization? What could be some unintended consequences of sanctions against Russia and the arming of the world’s reserve currency, the US dollar? According to analysts, the main beneficiaries of this environment are safe-haven assets such as gold and Bitcoin, as the pursuit of diversification has become a priority for countries, institutions and individual investors, while uncertainty remains the dominant theme in the second quarter of 2022.
Is the US weaponizing the dollar?
As you can follow from the news of Kriptokoin.com, the existing trade agreements and supply chains, which took decades to build, have been severely interrupted, first by the Covid-19 outbreak, now by the war in Ukraine and sanctions against Russia.
Analysts say that after Russia’s invasion of Ukraine on February 24, the US dollar was ‘armed’ to put pressure on Russia through multiple financial sanctions. Frank Holmes, CEO and CIO of US Global Investors and Chairman of HIVE Blockchain, said:
This is a very sensitive issue. The Federal Reserve does not want to damage its reputation and trust in the US dollar, which has not been backed by gold since 1974. At the same time, they confiscate the money of other central banks using the SWIFT system because their foreign policies are not compatible with the US.
Aryan Chopra doesn’t think the dollar will lose its reserve currency status
On the one hand, this geopolitical situation is fraught with the US dollar index rising to two-year highs after all this uncertainty. Supported the dollar as a safe-haven currency. The US dollar is strengthening against all other fiat currencies, and the US remains the prettiest home in a tough neighborhood. Alex Mashinsky, CEO of Celsius Network, comments:
The success of the sanctions and Russia’s trouble in Ukraine make everyone think twice before taking any action that could upset the United States.
Castell Wealth Management asset manager Aryan Chopra says the Federal Reserve’s hawkish stance strengthens the US dollar’s position against the euro and other currencies without such an aggressive tightening plan behind them. Aryan Chopra explains:
My position on the USD is neutral and I don’t think the US dollar will lose its status as the world’s reserve currency in the long run. However, with regards to emerging markets and commodity-based currencies, I do not foresee a bullish trend in the USD in the near term
Frank Holmes: Definitely receivables with gold or its digital cousin
Alex Mashinsky states that Russia’s invasion of Ukraine dissolved the West and extended the life of the US dollar as the global reserve currency for another 30-50 years. According to Mashinsky, the United States has successfully weaponized the USD, proving to the world that it has global power to decide who can trade and who can’t. Even Switzerland agreed to participate in the SWIFT sanctions this time.
On the other hand, widespread financial sanctions against Russia by limiting access to the US dollar and international payment systems may encourage more countries to diversify their US dollar reserves, which Russia has already been doing for years. Frank Holmes says this means bullish for both gold and Bitcoin and explains it this way:
Consider Maslow’s Hierarchy of Needs. People have an inherent need to feel secure (in this case financially), and if they can’t get it with a savings account or government bond, they will definitely get it with gold or its digital cousin.
Alex Mashinksy states that the sanctions against Russia clearly show that holding dollar reserves in other banks does not mean that they can always be accessed or spent, and makes the following assessment:
Every central bank and commercial bank has to re-evaluate who has reserves and which denomination they use. This places a much higher value on Bitcoin, gold and other digital assets than before, enabling faster worldwide adoption of such assets.
“This is a bullish situation for gold”
Aryan Chopra admits that one of the consequences of the weaponization of the dollar is the increased demand for gold as a hedge.
Sovereign nations will seek greater diversification in their reserve and payment systems, with further increasing gold, Bitcoin and foreign exchange reserves based on their trade and supply chain partners. This is a bullish situation for the long-term precious metal, which has yielded over 500% returns since 2000.
“The story of Bitcoin as a reserve holding could change in this case”
Aryan Chopra, as the world’s largest cryptocurrency is still in its infancy and is very volatile and as it remains highly leveraged, it is too early for countries to start buying Bitcoin as part of their reserves. tends to perform very well. In stagflation or a slowing economy environment, it remains to be seen whether Bitcoin will act as a commodity or a store of value.
However, Aryan Chopra adds that the story of Bitcoin as a reserve holding may change when major pension funds are involved. According to Chopra, this will require state acceptance, regulation and compliance of the asset.
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