China’s relationship with Bitcoin has been a checkered one. It single-handedly ended the 2013 bull run and has spent the next six and a half years banning ICOs, airdrops, and all manner of other crypto-related activities. However, the past few weeks have seen it change its tone dramatically, labelling Bitcoin a “safe haven asset” and now ramping up research on its own national cryptocurrency.
The reason for this change of heart is much closer to home than Beijing – 1600 Pennsylvania Ave, in fact. The Trump administration’s ongoing trade war with China has had ramifications in many geopolitical arenas, and none more so with Bitcoin, which has found itself fulfilling an important role in the standoff. We look at how the US/China trade war is impacting the price of digital gold.
US Stock Market Decline
After a decade-long bull market that has seen major US markets rise 4-5x, there are signs that the China trade war could be coming at the worst possible time. As we can see from the charts below, prices have been rejected around the same stage as they were before the slump in December 2018, suggesting that they are making a double top, which suggests they’re only going in one direction from here – down.
All stocks have been impacted by the uncertainty surrounding the escalating trade war, and this, combined with a decade of growth, has meant that US stocks are not currently attractive to large capital. Bonds still have some upside potential, but Bitcoin is a far more attractive option, having just come out of a bear market as opposed to the traditional markets which could be about to enter one. With no dog in the US/China fight, Bitcoin is currently drawing institutional capital away from these markets which adds fuel to price growth.
Chinese Capital Flight
Since the start of the trade war back in June 2018, China has enacted a very strict capital control measure, which is nearly impossible to circumvent by traditional means. The truckloads of USDT they have been buying have provided a convenient tool for Chinese capital to escape the country, with the overflow adding fuel to Bitcoin’s price discovery. With the Yuan also devaluing against the dollar on the back of the tensions, it’s not surprising to see investors seek alternatives.
1. China switches stance from banning $BTC to explaining why it is valuable and is a safe-haven asset. 2. China starts a currency war by devaluing the YUAN before the United States has the chance to do the same to the dollar. 3. ??? https://t.co/cFETFt9gt8
— The Wolf Of All Streets (@scottmelker) August 5, 2019
More to Come for Bitcoin?
Just how much of Bitcoin’s recent resurgence is down to this isolated incident in unclear, but what is clear is that Bitcoin’s position as a government-agnostic asset is working in its favor, and as long as the world continued to slip down a slippery financial and geopolitical slope we could see hodlers rewarded further.