Key Takeaways:
- EU, U.S. and allies plan to cut Russia off from international banking system SWIFT.
- The consequences for Ruble would be severe, warns an international affairs expert.
- Europe could also feel the ripple effect through natural gas supply dependancy, but LNG could plug the shortage.
- Stock market and Bitcoin rise against the consolidating gold, as hopes for peace talks rekindle.
YEREVAN (CoinChapter.com) – In an attempt to bring Putin’s regime to its senses amid the raging war in Ukraine, the U.S., the European Commission, and allies are planning to cut several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
The risks and eventual happenings of the said sanctions plummeted the Russian Ruble by more than 20% in less than two weeks.
Why is SWIFT important?
SWIFT is a sophisticated messaging system that banks use worldwide for financial transactions worth billions of dollars every day. Many experts agree that cutting the country off the system could acutely affect Russia and the world economy. For example, Jackie Northam shared her take on the National Public Radio (NPR).
If the Russian banks are expelled from SWIFT, they won’t be able to make or receive payments, which, of course, has a knock-on effect for both Russia and any business it has internationally.
said the correspondent.
Also read: Ukraine invasion sparks debate on interest rate hikes — what does it mean for Bitcoin?
Ms. Northam also cited Brian O’Toole, a former Treasury sanctions official. The latter called the sanctions “unprecedented.” The expert added that they could freeze most of the country’s $630 billion in foreign reserves, calling them Russia’s “nest egg.”
What will happen to Ruble and Russian gas prices?
Mr. O’Toole also saw the SWIFT sanctions having dire consequences for the Ruble shorty.
They’re not going to be able to prop up their currency. They’re going to have to spike interest rates. That may not do any good. There’s going to be massive inflation. The ruble is going to absolutely crash. This will have a systemic effect across the Russian economy.
Commented Mr. O’Toole.
Also read: Bitcoin charges $40k barrier as markets rise on hopes of Russia-Ukraine talks.
Furthermore, the RUB/USD exchange rate has a history of reflecting Russia’s involvement in international conflicts. The chart below shows that Ruble plunged three times in the previous two decades. The 2008 conflict in Georgia slashed 32% off the ruble value, while the first Ukrainian conflict in 2014 cut the RUB/USD rate in half.
Gazprom vs. LNG
However, the ripple effect wouldn’t stop at Rouble, as the European Union heavily depends on Russia as well. In detail, Russian Gazprom Export LLC is currently the largest natural gas supplier to the EU. In 2020, Gazprom supplied 174,9 billion cubic meters of gas to European countries.
[European companies] have a lot of business dealing with Russia and rely on Russia for natural gas to run their factories. There’s a chance President Putin could cut the flow of gas to Europe. But, you know, that would hit Russia’s economy, too, because it needs those gas revenues.
asserted Mr. O’Toole.
Notably, Gazprom’s share value (GAZP) plummeted since the Ukraine conflict. The chart below demonstrates the recent inverse correlation between GAZP and Europe’s second-largest gas provider: American LNG (Liquidated Natural Gas).
In detail, The West has not gone so far as to limit Russian gas exports. However, Germany has suspended the licensing of Nord Stream 2 (ns2), a completed but not yet operational pipeline between Russia and Germany.
Also read: Bitcoin, stocks, Ruble: Putin's invasion of Ukraine hurt all at once.
However, there’s a possibility that LNG could bridge the gap in case Russia fires back with gas supply manipulation.
In detail, the instability on the global markets has left traders in need of a safe-haven asset, as it typically happens in times of economic distress.
Is Bitcoin an escape?
As CoinChapter previously covered, Bitcoin claimed the niche of a safe-haven asset in 2021 against the Covid-19 Pandemic. However, the tables have turned as the leading cryptocurrency correlated with the stock market in recent months.
Hence, Bitcoin temporarily parted ways with safe-haven assets, such as Gold, which could mean its susceptible to market conditions that potentially harm risk-on assets. Thus, as of Feb. 28, the risk markets’ upside move since Russia’s attack was mirrored by sideways consolidation of Gold.
However, the Ukrainian government chose the crypto route to avoid intermediary banking services. As a result, the country raised $10 million in Bitcoin and Ethereum, selecting an “unlikely crowdfunding method.”
Also read: BTC struggles below 38K, as gold rally amid Ukraine tension jeopardizes Bitcoin's safe-haven status.
Meanwhile, Mykhailo Fedorov, vice prime minister and minister of digital transformation of Ukraine, has called on crypto exchanges to freeze the accounts of both Russian and Belarusian users.
However, as the financial warfare threatened to move into the crypto domain, news of talks with Ukraine in Belarus’ capital Minsk strengthened the risk-on assets’ bullish positions.
The hope of a close conclusion helped Bitcoin and other cryptos rise on Friday, as Bitcoin returned briefly to $40,000. The BTC/USD exchange rate stood above $38,300 in the European session on Feb. 28.
