In a potential repeat of the 2015 process that saw the drop in yuan repeatedly push bitcoin up, the BTC token soared to above $11,800 today. The reason – PBoC or the People’s Bank of China’s decision to push the yuan to its decade low point. This lead to the hike in BTC price of about seven percent in less than 24 hours. This further took the weeklong gains to almost 24 percent. The price did correct itself with the opening of the European market day, but this was only a 1.3 percent correction.
The bitcoin trading activity also props up the same bullish trend. Over 24 hours, the network saw a $1.7 billion in trading volume. These are huge numbers and their impact is related to one of the biggest economies in the world – China. Ethereum and other big cryptocurrencies mimicked the trend, so all boards in the green, promising even more gains to come. Now, analysts and traders are scrambling to foresee the next big moment in the market which could come in hours, not days.
Decline of Yuan
The gains that the bitcoin market made coincide perfectly with the decision from the US. There, US President Donald Trump imposed a 10 percent tariff on a range of Chinese imports valued at over $300 billion. This huge decision pushed the PBoC to set it daily rate for the domestic currency below $7. This is the lowest level in over a decade.
The bank said that it would keep the yuan reasonable and balanced and added that a move is an act of trade protectionism against the US economic warfare as China labeled it. From the position of the PBoC, the latest decision is nothing but a reflection of the changing demand and supply, all under the influence of the trade war. This led markets across the globe to a heavy beating.
Nikkei Index in Japan dropped by 1.7 percent, which is just above the fall that the Shanghai Composite Index had. In Kospi in South Korea, the drop was 1.6 percent. None of these measures up to Hong Kong, where the Hang Seng Index crashed by over 3 percent. This is the worst value since October 2018. The city is in even more trouble because of the sociological turmoil that is unfolding in Hong Kong.
On the other side of the ocean, as most analysts pointed out months ago, the trade war is having its own impact. In fact, conflict is anything but one-sided. The US stock futures are badly underperforming because of the Chinese yuan rate cut. Some futures dropped by as much as 1.3 percent.
Dow Jones saw a contraction that shed about 1.2 percent of the total capitalization. Nasdaq 100 fared even worse than that. It slid by as much as 1.7 percent in the wake of the same event. The USD is not going to say strong in this type of environment. Not only that, but many will point out that the great gold buying rush of the first half of 2019 will start to make more and more sense.
This setup is a perfect example for all those who lobbied inside of the central banks across the world that gold should be once more considered as the go-to reserve currency. Not surprisingly, all of this is also resonating with the crypto markets and the signals are swaying towards buy.
Crypto Bull Run
In the chaos of such process as the yuan devaluation, the chance of people reaching out to crypto for creating hedge funds is far from unlikely. In 2015, sometime similar already happened when China undertook a range of yuan price drops that left many in the country scrambling to find ways to protect their money. Being that access to foreign currencies is tightly controlled, many chose bitcoin, then still relatively novel cryptocurrency as a means of pulling their funds to safety.
Today, it is again a hot topic as many points to the chance of the depreciation triggering a flight of capital from yuan to bitcoin and other cryptocurrencies. The fears of both the devaluation and the possible currency war are by no means an exaggeration. The Chinese wealthy class has already suffered recently and saw a lot of their money lost in the wider geopolitical struggle.
With these going up, options for a safe haven are more than welcome and bitcoin is now, in a strange way, an established process that already worked at least for some four years ago. In theory, even first-hand experience from those who already went this path in 2015 could be applied by others who find themselves in the same setup.
This might be the age of esports, video content and generally super-fast informational pathways, but direct experience is still paramount in many quarters. It is easy to see how a business person who saved money in 2015 could spread the word about this to a circle of friends. The word of mouth process could carry this far and wide in China.
Playing the Odds
While this narrative makes sense, many are quick to point out that this might be a simplification. Like years ago, most individuals in China who want to protect their capital are fully aware that crypto is not a silver bullet by any stretch of the imagination. Furthermore, the very concept of this possibility now being public knowledge could be its downfall.
In 2017, China easily pulled the plug on its ICO industry and cut it off from the rest of the world. In no time at all, the rise of ethereum network that had been supplying the ETH tokens for most of these ICOs also stopped and the initial coin offering as a phenomenon died down.
If countless individuals decided to switch their yuans into bitcoin, chances are Chinese authorities would quickly find a way to put a stop to this, or at least give it their best shot. On the day this possibility scenario took place, the BTC price would plummet down hard and fast, potentially worse than ever before.
On the wings of that news, people would be worrying a crackdown on crypto mining operations is also in the cards, which would further drive the cycle downwards. With that possibility, the whole notion of crypto being a hedge fund would also be rendered pointless as well.