To investors,

Most people’s attention has been on the accelerating inflation and reactive monetary policy decisions in the United States. This is the problem that we can see when we go to the store and it is the problem we feel in our wallets. The problem is complex though. It can’t be attributed to any one issue, so it is important to continue to zoom out and see the entire playing field.

One of the developments on that global playing field in the last few days has been the G7 decision to ban imports of Russian gold. I don’t spend a lot of time personally analyzing the gold markets, but feel this is another major milestone in the decades-long trend of attempted weaponization of currencies by developed nations leading to degrading trust in those very same currencies.

I went looking for someone who had more informed opinions about this development and came across Danny Diekroeger. Here is a quick summary of Danny’s thoughts in his own words:

This past weekend, news broke that the G7 will be banning imports of Russian gold. This could be the start of some big moves that goldbugs have been anticipating for years…

Many believe the price of gold in US dollars has been held down for years by the fractional reserve systems implemented by the LBMA and COMEX. There are something like 100 paper claims to every gold ounce in existence.

But fractional reserve systems are vulnerable to bank runs. If a lot of "paper gold" holders request to take possession of their gold, there simply isn't enough physical gold to match these claims. A supply/demand imbalance and a rush to obtain gold could pressure this system and cause these failures. Goldbugs have been talking about this situation for years.

And the cracks are starting to show. We saw something similar earlier this year in the nickel market, where the price went vertical and the London Metals Exchange canceled a bunch of trades.

Macro analyst Luke Gromen has theorized that destabilizing the western gold financial markets could be a key part of Russia's strategy to weaken the US dollar. We saw the beginnings of this when Russia tied the ruble to gold earlier this year.

And now the G7 has banned gold imports from Russia.

If people can't source their gold from Russia anymore, they may look to take delivery from the western fractional exchanges, putting pressure on the system as described above.

So what would that look like in a gold-bug's wet dream? Here's one way it could play out:

Increased friction of sourcing gold leads to a consistent rise in the price of gold, bringing it to new highs, etc. Then at one point on a delivery date in the futures market, one of the big western exchanges fails to deliver physical gold to a big paper holder who is requesting delivery.

This would be major news - a major western gold exchange unable to deliver. At this point we'd see a separation of the physical price of gold from the paper price. The paper claims would get cashed out at yesterday's price (you get cash, not gold). Meanwhile the price of actual physical gold shoots up vertically. And paper claims like $GLD etf holdings won't be worth the same as the gold bars under your bed. This would be madness for financial markets, but something that goldbugs have been long predicting.

Even a bitcoin maxi like myself can see this potential shock coming to the gold markets, and I can’t resist riding the wave. Got some physical gold coins secured in storage, hoping to sell for bitcoin when the panic hits.

This is a fascinating situation and one that is worth following over the coming weeks and months. As I stated before, I am not an expert on the gold market. The interesting part of this story is the continued attempts to weaponizing currencies on the geopolitical stage. If Danny’s theory plays out, there will be ramifications to gold, bitcoin, and various fiat currencies.

As with anything that you read in these letters, there is a risk that this situation does not play out. We would simply be watching an acceleration of the financial sanctions against Russia by G7 nations. It begs the question — what else is left for them to go after? How much more damage can they inflict?

We may find out sooner rather than later. If you enjoyed this piece, make sure to give Danny a follow on Twitter: @dannydiekroeger

Hope you all have a great start to your week. I’ll talk to everyone tomorrow.

-Pomp

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THE RUNDOWN:

Goldman Sachs Leading Investor Group to Buy Celsius Assets: Sources: Goldman Sachs is looking to raise $2 billion from investors to buy up distressed assets from troubled crypto lender Celsius, according to CoinDesk. The proposed deal would allow investors to buy up Celsius’ assets at potentially big discounts in the event of a bankruptcy filing, the people said. Goldman Sachs appears to be gauging interest and soliciting commitments from Web3 crypto funds, funds specializing in distressed assets and traditional financial institutions with ample cash on hand, according to a person familiar with the situation. The assets, most likely cryptocurrencies having to be sold on the cheap, would then likely be managed by participants in the fundraising push. Read more.

With Bitwise and Grayscale Decisions Looming, Spot Bitcoin ETF Approval Hopes Are Running Low: Expectations for the U.S. Securities and Exchange Commission's approval of two upcoming spot bitcoin ETF applications are low, and have faded since the approval of Teucrium’s futures-based product that initially provided some optimism. The two applications currently on investors’ radar are those of the Bitwise Bitcoin ETP Trust, with a decision deadline of June 29, and the Grayscale Bitcoin Trust, with a deadline of July 6. Read more.

European Crypto Exchange Bitpanda Cuts Staff by Hundreds: Austria-based crypto trading platform Bitpanda is slashing its headcount to ensure sustainability, the company said in a Friday blog post. Bitpanda’s founders said the firm needs to let employees go as it scales down due to market conditions. The company said it is aiming for a target headcount of 730. It has just over 1,000 employees, according to LinkedIn. Read more.

Flowdesk Raises $30M to Expand Market-Making Services: French crypto financial services firm Flowdesk raised $30 million in a Series A funding round that was led by Eurazeo, Aglaé Ventures and ISAI and included the participation of Coinbase, Ledger, Speedinvest, Fabric.vc and a handful of angel investors, the company announced Friday. Flowdesk plans to use the funding to build out its trading infrastructure for its market-making services. The product connects 60 cryptocurrency exchanges and can support 10,000 cryptocurrency issuers in providing liquidity and managing their own funds. Read more.

Caitlin Long is the Founder & CEO of Custodia Bank.

In this conversation, we talk about all the liquidation in the crypto market, other factors that caused Bitcoin's price drop, the macro economy. Fed interest rates, and how long the bear market may last. We also break down Caitlin's company that is attempting to change the way banks are operated.

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Bitcoin Is Potentially Going To Take Over The Bond Market?

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