In Russia, all values are currently melting away – except Bitcoin. This may usher in a peaceful currency reform: hyperbitcoinization. It could save the Russian economy from total collapse.
The idea of hyperbitcoinization was floated in 2014 by Daniel Krawisz of the Nakamoto Institute. It has been a household name among Bitcoiners ever since.
Hyperbitcoinization means the end game, so to speak: the last few meters to the complete dominance of Bitcoin. Daniel Krawisz described it as what “happens to a hapless currency when it gets caught in bitcoin’s path to world domination.” The currency is rapidly depreciating as bitcoin replaces it.
The Great Monetary Reset
Hyperbitcoinification is similar to hyperinflation. Both lead to the dissolution of a currency. However, it has other reasons – the currency doesn’t dissolve, it is replaced – causes less damage to the economy and expires much faster.
One could also say: Hyperbitcoinization is a peaceful, non-state currency reform. It can save an economy when monetary policy threatens to vaporize it in hyperinflation. Or to put it another way: Hyperbitcoinization is “the great reset” of money.
So far, hyperbitcoinization has been more in the imagination of bitcoiners. At some point, so the idea goes, the moment will come when Bitcoin will prevail as a global means of payment, or when the established fiat currencies will collapse. Then it will be time.
This moment has been hypothetical so far and took place in a hypothetical future. With Russia’s war and Western sanctions, it suddenly becomes realistic in an almost frightening way.
First + Second = Third?
Two factors must be kept in mind to understand just how big a role Bitcoin can play in Russia’s current crisis.
First, residents of Russia are estimated to own $200 billion worth of cryptocurrencies. The estimate is based on information from the Kremlin. Bloomberg also cites other estimates of just under $100 billion, but acknowledges that the Kremlin estimate may be understated. We can’t verify these numbers, but for the sake of simplicity, we assume $200 billion
Second, the war and sanctions are disrupting pretty much everything in Russia except bitcoin and, to a limited extent, gold.
First and second equals third – a massive redistribution of values. This is happening all over the world anyway, while bitcoin is becoming part of finance. Already, cryptocurrencies could be the largest peaceful redistribution in history. In Russia, however, this process is currently accelerating exponentially.
6.67 percent of all Russian wealth
According to an estimate by Credite Suisse, Russia had a good $3 trillion in total assets in 2020. This includes, among other things, real estate, stock market shares and bank deposits.
Here, too, great skepticism is appropriate. We cannot verify how accurate the figures are and whether they also include items such as black money, untapped mineral resources and so on. But again, for the sake of simplicity, we assume that they are roughly correct.
This makes the $200 billion Russians hold in bitcoin and other cryptocurrencies equate to 6.7 percent of Russia’s total wealth. Even before the war, that was an extreme street number that you hardly find in any other country. Maybe in Ukraine, maybe in Venezuela or Argentina.
But now there is war and sanctions. All values lose, only Bitcoin remains stable. This inevitably increases the share that Bitcoin has in Russian wealth. But how high?
A collapse of values by up to 70 percent
Let’s look at the main items on the balance sheet. The ruble – devalues extremely quickly. The money supply M2 , according to statistics, is 65 trillion rubles. That corresponded to 780 billion euros or 860 billion dollars at the beginning of February. Today, 465 billion euros or 513 billion dollars remain.
The Central Bank of Russia holds foreign exchange reserves of over $630 billion in dollars, euros and yen. These are now frozen and temporarily worthless.
Russia’s main stock index, the RTS , has peaked over the past 12 months with a market cap of $951 billion. Today it has fallen to $305 billion.
With these three items, Russia had a fortune of $2.441 billion. Of these, 818 billion remain. This results in a loss of almost 70 percent.
Assets such as real estate, gold or undeveloped mineral resources are not included in our calculation. Therefore, it can be assumed that the $3 trillion in total assets were stacked too low. However, it can also be assumed that real estate will collapse in a similar way to the stock market, and that gold will also be frozen to a certain extent.
The capital flight of wealthy Russians and the confiscation of accounts and assets abroad are also not part of our calculations. Switzerland alone estimates that CHF 10-150 billion will be frozen as part of the sanctions. Furthermore, one could include the destruction of military equipment in the loss account.
In short, a 70 percent collapse in Russian assets is not unrealistic at this point. It’s an order of magnitude. It can be as low as 50-60 percent, maybe even less, but could be as high as 80 percent or more depending on how things go.
Bitcoin dominates the values
If we assume a value collapse of 70 percent, the share of cryptocurrencies in total assets has already reached a good 20 percent.
Of course, these are purely intellectual constructs. The numbers themselves are far too fuzzy. It could also be 10 or 30 percent. This needs to be emphasized again. Above all, the figures show what is conceivable within the realms of possibility and reality.
It is also realistic and conceivable that the Bitcoin price will double over the coming months. In that case, cryptocurrencies would account for 40, or 60 percent, depending on how the crisis unfolds, of Russian assets.
So there is a possible future where cryptocurrencies make up the majority of Russian fortunes not too far away. You have to let this melt in your mouth.
Bitcoiners buy the land
Despite all the uncertainty of the data, there is one fact that can hardly be disputed: a massive redistribution of proportional wealth is currently taking place in Russia.
Anyone who owns rubles, stocks and real estate loses massively. Anyone who has bitcoins holds their position or expands it. The same would apply to gold per se, but owners of gold are threatened with confiscation. This process of redistribution is likely to become more extreme the longer the war lasts.
It’s hard to say anything about Russian Bitcoiners. As always, Bitcoin connects the most diverse people. From oligarch to millennial, from drug dealer to startup founder, from hacker to activist. But one thing is clear: Bitcoin is the perfect – perhaps the only viable – means of currently bringing wealth abroad.
One can therefore assume one thing: the many Russians who have left their country in the last two weeks have carried a not inconsiderable amount of Bitcoins with them. You can now wait and see what happens from abroad and use your wealth wisely.
These bitcoiners, whether domestic or foreign, are becoming the new oligarchs as the crisis unfolds. You can practically buy the land. Land, real estate, factories, corporations, gas fields – yes, even the state.
The final game
That’s the part of the hyperbitcoinization endgame that Daniel Krawisz doesn’t tell.
It won’t be the case that everyone just uses Bitcoin because they think it’s right and the old currency is pushed out. That would be the rainbow variant. The reality is dirtier: bitcoiners are getting filthy rich while everyone else is impoverished, allowing bitcoiners to buy so much that they are in a position to force others to use bitcoin too. Perhaps the state will no longer be able to pay soldiers, after which Bitcoiners will be the only ones who can afford the mercenaries.
If the situation in Russia is anything like what the estimates suggest, the scenario is not unrealistic: Russian bitcoiners could get a chance to usher in the hyperbitcoinization endgame. They could acquire the means and influence to initiate currency reform. One can probably imagine it as similar to the chaos years after the collapse of the Soviet Union. Maybe even more anarchic, capitalist, oligarchic. Maybe more peaceful and constructive.
The government will probably fight back. She will try to stop the process. They will try to ban or confiscate bitcoin. There will be a fight in which the fronts are not clear.
Parts of the government will also hold bitcoins – and thus become richer and more influential. Parts of the economy will use Bitcoin to do business with foreign countries. Many in Russia will be skeptical that the Chinese yuan will become the de facto currency under the dollar boycott. Many will therefore prefer Bitcoin in order not to switch from American to Chinese dependence.
So the question will be: will economic necessities prevail – or will the tyranny of the state? As hyperbitcoinization progresses, as more cryptocurrencies seep into the country’s economic fabric, it will become more difficult to resist the dictatorship of the economy.
The only thing that can still stop this process is probably peace and a return to normality. If the government doesn’t come to their senses, Bitcoin could force them to — or undermine their economic foundation.
At least there is reason to cautiously hope for it.