Is The US-China Trade War Helping Bitcoin?

Let’s get right to it. The US-China trade war is bad for stocks and traditional instruments, but it’s turning out quite good for cryptocurrencies. Bitcoin transactions are at their peak since cordial trade relations between the U.S. and China have been fractured. A failing Yuan has sent Chinese investors fleeting, according to crypto experts.

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Since the start of 2019, Bitcoin’s correlations to both the US dollar and equities has been declining. Bitcoin has historically performed well in times of heightened geopolitical tension. This is due to its ingenious tokenomics. At the same time, it’s becoming more linked to Gold, a well-known safe-haven asset for investors looking to shield portfolios from market volatility. The start of the Trade war sent Bitcoin prices up by 18% in less than a week. Gold, the traditional hedge against economic crisis also rose on renewed tariff fears, gaining 1.5% to $1,461.30 per ounce, according to precious-metals data provider Kitco Metals.

China let its currency weaken below seven Yuan to the dollar and this is the lowest that it has been in the past 11 years; this happened last Wednesday when the U.S. Federal Reserve cut its key interest rates for the first time in more than a decade. Owing to this measure President Trump accused China of currency manipulation amidst an escalating trade war. Crypto experts like Michael Novogratz, founder of crypto investment firm Galaxy Digital, predicted that global unrest would extend this year’s bitcoin rally. He called the trade war the beginning of a capital flight.

The two largest economies in the world have entered a full-blown currency war and China pulled all stops by letting Yuan drop beyond seven points. This had a massive impact on Global Financial markets and Eurozone nations are suffering collateral damage in this war.

In a statement regarding the exchange rate changes on Monday, the PBOC explained that it “has accumulated rich experience and policy tools, and will continue to innovate and enrich the control toolbox, and take necessary and targeted measures against the positive feedback behavior that may occur in the foreign exchange market.”

This was taken by the American side as an official announcement by the Chinese central bank that it remains committed to fighting to defend its interests on the currency front. The U.S. Treasury Department has announced plans to turn to the International Monetary Fund (IMF) to “eliminate the unfair competitive advantage created by China’s latest actions.”

Besides asking the IMF to probe into its trade rival’s currency devaluation, this step will also allow the Trump administration to take further actions against China within the American legal system. These include banning Chinese companies from seeking trade financing or taking part in U.S. government contracts.

Unsurprisingly, the currency war has also triggered a flight to safety by investors in the Eurozone and across the Asia Pacific region, who see both governments struggling to weaken their own fiat currency in an attempt to hurt the other side. This is driving sharp turns in the cryptocurrency markets. With the situation only heating up, this might be the start of a new long term crypto bull market as more investors will see it as a hedge against their savings losing value. Bitcoin may benefit greatly from the continuation of the trade war and the following recession.

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