Plus, Oil Could Hit $100 Per Barrel by Summer
Welcome to your Sunday digest…my weekly breakdown of the things we’re thinking about and talking about in the Global Intelligence world.
First up…is Russia about to ban crypto?
Earlier this month, Russia’s central bank caught the global crypto community off guard, when it issued a report calling for a ban on crypto trading and mining in the country.
In the report, the Central Bank of Russia denounced crypto as a danger to the ruble, Russia’s sovereign currency, and a threat to citizens’ wellbeing.
Russia banning crypto would be notable, given that the country is the third-largest bitcoin mining nation, behind global leader the U.S., and second-placed Kazakhstan (which is struggling through some political turmoil at the moment).
The central bank’s skepticism toward crypto was well known before the report was issued. Still, the strength of the language surprised some analysts. And it appears it surprised the country’s finance officials, too.
After the release of the report, a high-ranking Ministry of Finance official voiced support for regulating rather than banning crypto.
Members of Russia’s parliament, the Duma—which has long had a tense relationship with the Central Bank—similarly came out in favor of regulation rather than prohibition.
Even President Vladimir Putin said he prefers regulations rather than bans. And being married to a Russian wife, I can assure you that “prefers” is a euphemism for “this is how it will be.”
Thus, the idea of a complete crypto ban in Russia would seem DOA.
Still, even if a ban were to happen, the impact on the global crypto market would be minimal.
China was a far bigger player than Russia when it banned bitcoin trading and mining last year. And the sector recovered very quickly.
And just like their Chinese counterparts, Russian miners would simply relocate overseas if and when a ban was enacted.
Next up…oil is heading to $100 per barrel.
Since the start of this year, Brent Crude is up roughly 15% to the high-$80 per barrel range.
Now, analysts at a number of the top Wall Street banks, including Bank of America and Goldman Sachs, are predicting that it will top $100 per barrel by summer…its highest level since 2014.
They’re catching up to Global Intelligence and Field Notes readers. I said a year ago that oil was going to push toward $100 per barrel by the end of 2021. I was a little premature, but here we are, knocking on the door.
Oil consumption has now rebounded strongly from the depths of the pandemic. The problem is that production is struggling to keep up with rising demand. And that’s going to continue across 2022.
During the pandemic, exploration and production companies shut down a lot of oil production and stopped looking for new reserves, all in an effort to conserve cash.
Now, restarting oil rigs isn’t as simple as flipping a switch to “on.” It is a difficult, time-consuming process.
As economies fully reopen and air travel picks up again, global supplies of oil will be stretched thin. There are now worries that by summer, global oil supplies will fall to their lowest levels in two decades.
Moreover, because exploration halted, companies are a couple years behind the necessary regulatory processes required for opening a well. Even if an exploration company found the biggest pool of oil reserves in history tomorrow, licensing that project would take years.
And with the cost of salaries and materials rising due to inflation, some companies are still hesitant to fully relaunch exploration, even with prices in the high-$80s per barrel.
So, in summary, we have low inventories and low investment in exploration and production. That adds up to one thing: a big spike in oil prices is in the offing.
All of which means you can expect prices at the pump to remain high.
Inflation will remain high too, since oil prices are an underlying cost for virtually every industry you can imagine.
Finally this week, Bank of America says this crypto will be the Visa of the digital asset world.
If you’re a regular reader of these columns, you’ll be familiar with the name Solana.
Solana is a blockchain network that hosts a vast array of crypto projects and services. Since launching in 2020, it has emerged as one of the most important crypto networks in the world, settling more than 50 billion transactions.
The popularity of the network has seen SOL, the native cryptocurrency of the Solana network, explode in value over the past year.
At time of writing, SOL has a market capitalization of roughly $28 billion, up from just $100 million at the start of last year.
The reason for Solana’s rapid adoption and massive popularity is the high speed and low cost of its network.
Over the past year, the world’s largest blockchain network, Ethereum, has been plagued by high transaction fees. So, many developers have shifted to using Solana instead.
This is what led Bank of America to predict that Solana, and not Ethereum, will become the “Visa of the digital asset ecosystem”—meaning it will be the dominant payment platform for digital assets like non-fungible tokens, or NFTs.
I both agree and disagree with that sentiment. Let me explain what I mean:
One of the reasons Solana is a faster network than Ethereum is that it prioritizes speed over security and stability. This has led to some performance issues on the Solana network.
By contrast, Ethereum prioritizes security and stability over speed.
So, I envision a world in which both Ethereum and Solana have big roles to play.
We need to understand that money will work differently in the future.
At the moment, most of us transact solely in dollars. That won’t be the case in the future. We’ll be trading different types of currencies and different types of assets on an almost daily basis. And we’ll use different networks for different services.
Imagine, for instance, you’re playing an online game that has in-built microtransactions. These transactions are literally fractions of a cent. In this case, you’re not going to care if one out of every 100,000 transactions fail. You’re just going to want speed. This could well be the world of Solana.
Now imagine that you’re selling your house on the blockchain as an NFT, or non-fungible token. In that case, security is everything. You won’t care if the transaction takes two minutes or two hours. You’ll want certainty and stability, so you may use the Ethereum network.
That’s why Bank of America’s assessment is correct, but also a tad simplistic.
I believe Solana has a massively bright future. But there won’t be one “Visa of blockchain.” There could well be dozens.
That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website.