While senior financial officials debate the far-reaching consequences of Russia’s economic sanctions, VanEck’s investing specialists have attempted to quantify the implications for the most prominent reserve assets right now: Bitcoin (BTC) and gold.
The VanEck emerging markets (EM) bond investment team, a renowned global investment manager established in 1955, performed an experiment to examine the possible effect of the sanctions, describing the method via a blog post, which “may have changed the system for reserve currencies.”
What the VanEck team did was “attempted to quantify the emergence of new gold or Bitcoin-backed currency regimes.” They created a system for estimating Bitcoin (BTC) and gold in an extraordinary situation in which any one of them becomes the reserve asset to perform this critical analysis. Because both Bitcoin (BTC) and gold have a restricted quantity, they believe they are suitable candidates for such an asset.
The team said that “the bottom line is that the upside for gold and Bitcoin is potentially dramatic.”
The estimated value of the reserve assets by using the framework has been capped at $1.3 million for Bitcoin (BTC) and $31,000 for gold. The VanEck team said that “adjusting for greater strains on financial and monetary systems generates even higher prices.”
Nonetheless, the team disclosed that the estimates pertaining to extraordinary circumstances can either happen exactly as estimated or not quite. As such, the amount and probability should be modified for every individual investor and their assumptions for the possible outcomes.
This is the first time that penalties have been imposed on a significant economic and financial player like Russia, said VanEck. The team feels that in this situation:
“Central banks are likely to change their reserve mix to the detriment of dollars (and euros and yen) and the enhancement of something else, to one extent or another. U.S., Eurozone, and Japanese sanctions on the Central Bank of Russia essentially “disappeared” Russia’s dollar, euro, and yen reserves. As a result, some central banks—and private actors—will be diversifying their reserves.”
The banks may focus on gold, according to financial experts, because it is “the easiest thing for central banks to think about and purchase.” On the contrary, players of the private sector could seek refuge in cryptocurrencies, if said players are “the more prominent price-setters in the emerging markets for now” as well as “are nimbler and react to the same underlying motivation.”
The value of Bitcoin (BTC) was $45,198 at the time of writing, a sluggish rebound after the day before’s precipitous collapse. For the past 24 hours, it has dropped 4.32%.
According to CoinMarketCap data, the namesake digital asset had been trading for over $47,000 for many days prior to the unexpected drop.