Last week marked 100 days of all-out war in Ukraine. As markets fluctuate and inflation looms large, academics, journalists and thought leaders are slowly beginning to realize: we have reached the end of normal, and there will be no going back. This is taking multiple forms.
In financial, tech, and crypto spaces, a deep spiral is beginning as stocks crash. Particularly notable so far has been the total collapse of the Terra Luna ecosystem, a once-promising and ambitious DeFi experiment aiming to craft an algorithmic stablecoin – a digital currency pegged to the US dollar existing entirely outside of the existing financial infrastructure and entirely unsupported by currency reserves or assets.
The collapse of Terra Luna left a massive crater in the cryptocurrency space. The depegging of the algorithmic stablecoin led to the near-total evaporation of $60 billion in investor assets; there are many, many accounts of retail investors – small-scale investors with limited financial capital – losing their retirement funds or their life savings.
The consequences of Terra Luna’s messy fall from grace are complex and multifaceted. Some view it as the end of the stablecoin or perhaps the entire crypto ecosystem; others think such fears are overblown. Since the collapse, the value of Bitcoin has dropped by nearly a thousand a coin, causing substantial problems not just for the tech sector but also for El Salvador. More significantly, there is ongoing debate in the press as to whether the Terra Luna crash, and the broader drops in crypto markets, represents a risk of contagion for the rest of the economy.
Meanwhile, Silicon Valley is being warned to prepare for a massive capital winter, as hedge funds and venture capitalists announce a massive reduction in available funds due, in part, to an increase (and further planned increases) of the Federal Reserve’s interest rate in order to more effectively combat inflation. This raises the question of whether Silicon Valley can survive without cheap credit and easy capital. The matter of whether or not venture capital is essential to the pace of technological innovation is now emerging as a key question for economists and social scientists. If true, the pace of innovation could decrease dramatically, the effects of which will not just ripple through the tech sector but also make the fight against climate change that much harder.
The severity of the war in Ukraine continues to grow, and more and more observers conclude that Russia cannot effectively achieve its wargoals. This massive humiliation, as well as the financial and diplomatic repercussions that a failure would incur could make it more likely that President Vladimir will resort to increasingly desperate measures to attain any conceivable kind of victory – this ranges from mass destruction through artillery warfare to the threatened use of nuclear weapons.
Beyond the risk of these setbacks, the Russian offensive has shifted dramatically in the past few weeks. Several bodies have done an excellent job covering the day to day and the tactical and strategic developments in the war.
The knock-on effects from the war are not insubstantial, ranging from the increased likelihood of food instability due to the current inaccessibility of Ukrainian wheat and fertilizer to massive increase in energy prices. One of the initial solutions, a proposed export of Indian wheat to satisfy global demand, has failed to materialize due to a heat wave on the subcontinent. This issue is likely to cause millions of deaths in the short to mid term if not addressed, and the United Nations is sounding the alarm.