Presently, the global economy is facing undoubtedly the biggest single crisis ever since the crash of 2008. In theory, this setup represents an ideal moment for bitcoin to show what it can do and prove itself as an uncorrelated asset that is immune to big political turmoil. However, while theory points to this, the actual situation on the ground is rocky, to say the least. This includes bitcoin holders, but also everyone else.
As the clouds of uncertainty continue to gather on the horizon and slowly move forward, the problem is not just theoretical. Instead, the wealth of many individuals is at stake and with it, the fortunes of numerous others. The ability of bitcoin to play a role in all of that is crystal clear, but the actual direction of that potential burst of activity, as well as its longevity remain burning questions.
The Start of the Currency War
This economic conflict is tightly connected to the ongoing Trade War between the US and China, but it is also a self-contained event that is very worrying. It started when the government in Beijing allowed the renminbi to go down below 7 per one USD. Immediately, the US Treasury Department stated that it would take a step that rarely occurs – they decided to impose the title of currency manipulator on China. This would allow the US administration to impose sanctions against China.
Markets reacted very badly to this and the same coincided with the fear of the raging Trade War going on between the same two countries. Both quickly merged into a single worrying entity that is seemingly pulling the economy of both countries further down. Yet, many are adamant that the worst-case scenario is not even an option.
Calming the Fears
A day after it pulled out the package of measures that included the devaluation of the yuan, the People’s Bank of China or PBoC addressed the fears of investors. It started buying more renminbi and stabilized its value. It then stated that – for now – it is not interested in using its currency as a weapon inside of the trade war. At the same time, many pointed out that the US Treasury Department’s label for China did not make a lot of sense related to its definition.
With that in mind, the chances of international institutions like the World Trade Organization or the International Monetary Fund backing the view of the Trump administration are very small. What is more unusual is that the US itself could become a target to international sanctions if it decided to engage China unilaterally on the same basis.
The Spreading Influence
In theory, this balance of power should be enough to appease all included and show everyone that China and the US cannot and will not create a new huge flare-up of the Trade War. However, the problem with the economic environment is the fact that many actors do not believe that politicians will make moves that are rationally based.
Instead, as the government’s regress to the authoritarian and unilateral actions, the chances of future extreme turmoil in the markets will continue to rise. Here, the butterfly effect is as big of a danger as anything else. Even now, with the changes to the yuan, a range of other countries has decided to pull their own economic measures.
Nations from New Zealand to Thailand and India announced cuts in interest rates to respond to the decline of renminbi value. Other systems are also on the move and pulling their own scenarios that would ensure they lose the least and potentially gain the most from the turmoil. The same movement all bear the hallmarks of the world near the 1929 stock market crash.
Naturally, it goes without saying that the world is no longer in the 1930s. With a globalized economy and the internet, the age of great interconnectivity ensued. This is why economist from all walks of life and practically every country in the world will state their support for any resistance to conflict. The same goes for economic conflict but also any other alternative.
All of them can and ultimately will hurt everyone involved in any form of conflict. Not just that – the focal points of power have shifted drastically. What was once the ultimate monopoly of mainstream media is now a diverse landscape where Google and Facebook wield more power on the global state than any individual news organization.
At the same time, the tools they employ – data-mining self-regulating algorithms that have made so perfect echo chambers that huge numbers of individual sub-groups become locked in group-think patterns. Seemingly, players of esports, social media influencers and other new roles fit perfectly in the new world being made. But, do they offer an alternative for financial security in the face of huge challenges?
In the age of instability, which apparently comes along with the age of huge change, people want to find protection in the face of insecurity. Some 80 years ago, people with those types of ideas had gold at their disposal. It was a widely recognized means of storing value and the go-to solution. Today, there is the same alternative in the form of bitcoin and other cryptocurrencies. It has similar attributes.
It is hard to procure, scarce, transferable and fungible. Finally, it also has a huge base of individuals who believe in it and its network. They are not divided by nation-states, political sentiment, religion, ethnicity or any other factor that is outside of this primary determination not to see bitcoin fail.
Even in the case of total political crisis, they will keep hold of their beliefs. This is the ultimate reason for procuring bitcoin – it will not disappear because so many people believe that it is a good thing to have in existence.
In the current climate, the same appeal will easily spread to more people, especially those who are abysmally disappointed in systems that put people like Donald Trump at the forefront. Now, will this transform itself into long-term value for bitcoin and the crypto domain? It depends what kind of a world will cryptocurrencies, like everyone, find in a decade or two from now.