Date: 01/06/2021
Author: Mr. X
Kazakhstan, a post-Soviet central Asian state, may not seem relevant to your portfolio. However, it may dominate the next few days politically and economically.
Everything is connected. And the people who need to be paying the most attention may be crypto investors.
First, let’s set up the geopolitical stage. Currently, Russian president Vladimir Putin is leading his country to the brink of war with Ukraine. About 120,000 troops are reportedly on the Ukrainian border. This is more than just a territorial feud – it’s really about Russian identity itself. Christianity was brought to Ukraine by Vladimir I, also known as Vladimir the Great. His tomb lies in Ukraine, though Russia also lays claim to his legacy. To many Russian policymakers and analysts, Ukraine is part of the “Russian world,” a concept that imagines Russia not just as a simple-nation state but a kind of self-contained civilization.
If Ukraine breaks away from that and joins NATO, it is not just a potential military threat, but a kind of spiritual threat. It shows that Moscow does not have the right to lead the peoples of the post-Soviet states – and that the breakup is final.
There’s also a political challenge for Vladimir Putin. Though there are elections (which Putin’s party sometimes loses) and Russia is hardly totalitarian, it’s fair to call it an authoritarian state. If Ukraine adopts a different social and political path, it is an implied challenge to the system President Putin has created. That may be why he was so quick to aid President Alexander Lukashenko of Belarus after a massive protest movement swept that country. Russian aid was instrumental in making sure Lukashenko kept his position.
Something similar is playing out in Kazakhstan. Rising fuel prices quickly turned into a massive protest movement against the government itself. President Kassym-Jomart Tokayev has blasted the demonstrators as “international terrorists.” Crowds have stormed government buildings, attacked soldiers and police, and set fire to a prosecutor’s office. Much of the ire is directed against Nursultan Nazarbayev, the former president who is still perceived as the power behind the throne.
In response, a Russian led military effort will enter the country to restore order. President Putin clearly has no interest in this kind of movement spreading and neither do other leaders in the region. The government in Kazakhstan has reversed course, now promising toughness instead of moderation.
This is going to be a major issue in the upcoming negotiations about Ukraine between Russia, the United States, and European powers. Vladimir Putin must show strength if he wants to keep any leverage.
Why should we care? The Biden Administration has promised massive economic sanctions against Moscow if it invades Ukraine. However, no one believes American soldiers would be sent to Ukraine.
An economic crackdown on Russia would be a massive disruption to international trade, especially the energy market. Yet we don’t need to speculate about the future. Kazakhstan itself is already sending markets into turmoil.
There are two major reasons why.
ENERGY
Kazakhstan is an energy exporting nation, but the government recently attempted to raise fuel prices for people in the country. This led to mass protests by drivers – which then led to a larger movement against the government itself. While oil is important, what has most people truly worried is uranium. Kazatomprom is the world’s largest uranium producer, and the country has over 40% of world uranium production. Uranium is critical to any movement towards clean energy. Thus, this isn’t just a geopolitical power over territory and conventional resources. It is the battle for the future.
Though yesterday was a tough one for the markets, those who were investing in uranium prospered. Sprott Physical Uranium Trust (SRUUF), one of the holdings in Dr. Kent Moors’s Sigma Trader portfolio, rose by almost 3.9% yesterday.
If the situation escalates, the share price probably will too.
CRYPTO
The turmoil in Kazakhstan has also contributed to what some on social media are already calling the “crypto collapse.” As some governments do in these situations, the authoritarian rulers have shut down the Internet. This also means shutting down the bitcoin mining that was taking place in the country, which was considerable. Bitcoin’s computational power has declined by more than 10% because Kazak miners can no longer communicate with the Bitcoin network. (Note: Bitcoin with a capital B refers to the network, the currency itself is called bitcoin.)
According to the Cambridge Centre for Alternative Finance, Kazakhstan hosts almost 20% of the world’s bitcoin hash rate. The hash rate is a way of measuring the computing power needed to process complicated mathematical transactions to mint new coins. Bitcoin operates on a Proof of Work model, where computers solve certain problems to “mine” coins. Years ago, a personal computer could mine. Now, vast computing ability and power are required to generate new coins.
Just two days ago, the Bitcoin network celebrated its 13th anniversary. Now, it looks tremendously unstable and vulnerable to action by governments. With the American government looking to crack down on crypto, China rolling out its digital currency, and disruptions in Kazakhstan making a global community of miners suddenly look vulnerable, the price is falling.
WHAT COMES NEXT
Capital is a coward, as they say. What investors want above all is order. If the Russian-led force can suppress this movement as effectively as was done in Belarus, uranium prices could fall and bitcoin prices could recover. Yet there wasn’t the kind of violence in Belarus that we’ve already seen in Kazakhstan. If this protest movement becomes more militant, or if a guerilla war breaks out, we could see true chaos.
Having committed, Vladimir Putin would have to make sure the rebellion is suppressed. Uranium prices would skyrocket, as control over these valuable assets would suddenly be questionable. Putin may also feel more pressure to take action in Ukraine so as not to look weak.
Russia’s political system can’t survive these kinds of revolutions (which many Russian analysts blame on Western NGOs and intelligence organizations) cropping up on the Motherland’s borders. Vladimir Putin’s test is to quash them as quickly as possible. If he fails, consider liquidating some crypto – and moving it into uranium.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing.
