What Putin's perspective is doesn't really matter though, he will do whatever he wants to do for whatever misguided/crazy reasoning is going on in his head. In the end the only thing that matters is how the rest of the world reacts.

Letting a megalomaniacal dictator that has clearly lost command of his senses run amok, especially when in control of a large nuclear arsenal is a risk we can not really afford, and appeasing such a person will only feed into the cycle of demands.