Radical devaluation

There's no fun in saving when everything is crumbling

The bitcoin liquidity and price appreciation (and drops) are something of a legend. On one hand, you have incredible transparency — you are free to look at every transaction that happens there, on the other, majority of crypto is in just a few hands, the exact same ones behind VCs and LPs, hedge funds, and the like.

As a kid, I have lived through price swings not unlike these. When I was 7 years old, I remember reading financial news and remembering the price of gold — it was around $346 when I was that age (it’s $1,833 today if you are interested). For some reason, even at young age I was fascinated by currency devaluation.

It just kept climbing. It just wouldn’t quit!

On TV at that time, around 1992, commentators would just say “dollar is getting stronger”, but going to school and seeings things through the eyes of a curious 7 years old, I kinda intuitively knew that — nope, it’s the ruble that’s getting weaker. The ruble lost something like 90% of its value (history buffs — please correct me with a proper figure here), meanwhile inflation was just 2,500% for the year.

Next time I lived through a similar time was in 2008. I was in Moscow, helping build a startup that an oligarch was funding, all the while I have been tweaking 500px as my “original” startup baby. I was frugal and good — maybe even great — at saving. In about half a year, I put all my earnings and savings into cash, worth about 1,000,000 ruble, or $40,000 US at that rate. Then, sometime in late summer, a global shock went through the financial system.

Right before that happened, Russian currency, then stable and appreciating in value, allowed millions, albeit briefly, to experience middle class lifestyle — to buy cars, borrow money, upgrade living conditions, travel overseas.

Now, I could see something strange started to happen. My savings, a significant (for me) sum of $40,000 turned into $39,000 in just one day. Then, $38,000 the next, then $37,000 the next. Sometime by the week three, I was down to $30,000. Everyone panicked. Russians went out to buy everything — brand new luxury cars, brand new appliances. Whoever could do so, locked in renovation contracts (in rubles, of course), and everything else. I did the same, as I saw my $40,000 melting into $22,000. I went and spent. By the end of the carnage, the currency lost over 50% of its value, going from 23 to 36 rubles per US dollar in about half a year.

What was surprising is that crisis actually increased economic activity, so on economic radars it didn’t feel like a slump, but rather as an extravagance and abundance. That didn’t last, of course, and as soon as initial savings were drained, the country slumped for years after that. Does that sound familiar? I think we are about to find that out.

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