Bitcoin

Bitcoin-Yuan Divergence Hits Record – U.S. Tariffs to Blame?

The ongoing trade war between the U.S. and China has sent ripples down the throat of the global economy since it started back in 2018, as Tariffs on billions of dollars worth of goods are being imposed from both ends. Small enterprises in both countries are getting hit as costs of buying crucial raw materials rise higher. Each country is trying its best to leverage the best out of the situation with China even getting blamed for manipulating its currency.

The President of the United States also tweeted last month:

As a currency devalues and the cost of exported goods decrease, the increased external tariffs tend to balance out, thus keeping the cost of goods being sold in the international market relatively low. This is done so that the competitiveness of a product does not get lost and the country does not lose its market.

But as the Chinese Yuan goes down, a record inverse correlation is being observed when it comes to bitcoin price. The following graph shows how the situation has been recently:

src:bloomberg

This indicates that as the Chinese currency falls down against the U.S. dollar, people are hedging it against bitcoin. Since bitcoin is an accepted virtual asset as per a court ruling that happened back in July in China, the rush of people towards bitcoin during the time of a falling currency in the country is quite natural at the moment.

As Dr. Garrick Hileman, a researcher at the London School of Economics and Blockchain.com’s research director, said:

There’s corroborating evidence for this, in that people in Asia were paying more for Bitcoin than elsewhere when the yuan fell,…You can see it in the premium price paid sometimes for Bitcoin in exchanges like Huobi that primarily cater to Chinese.

READ ALSO: ‘Bitcoin is Not Unbreakable’ – According to This Veteran Fund Manager

This behavior of people can be attributed to the trade-war intensification that is happening between the U.S. and China. The main purpose of devaluing the Chinese Yuan by its government is to maintain its market abroad as international tensions rise. But as the value of a currency falls, people also start looking for alternative store-of-value assets to safeguard what they already have in monetary terms.

In the past few months, gold was also seen spiking in its price because it is a traditionally trusted store-of-value asset. Although bitcoin is relatively new in the financial space as compared to gold, its growth in the past 10 years cannot be undermined at all.

One way or another, people are finally coming to accept bitcoin’s utility. Though negative activities associated with it are still percolating around, the positive sentiment about cryptocurrencies is growing with companies like Facebook, launching its own “semi-crypto”.

READ ALSO: Tackling Libra, China’s Own Crypto Will Also End AliPay & WeChat Pay

Though trade-war is detrimental to business across both U.S. and China, yet it can also prove to be a blessing for the world of bitcoin and cryptocurrency. Bitcoin is a technological innovation that presents the world with an alternate system of finance that is free from centralized control, like in the case of fiat and the banks.

Initially, bitcoin was discarded by mainstream public as an asset that was too risky to play with. But as the traditional financial system trembles and its shortcoming become illuminated, the inflow of capital towards bitcoin and other cryptos is strongly expected to happen as a by-product.

As more shortcomings associated with banks get highlighted, more space it will give to bitcoin to flourish. An international trade war might be hurting currencies of central banks, but if a currency is decentralized and is not controlled by any country, the consequences are a bit different.

READ ALSO: Bitcoin’s Correlation with Gold Amid US-China Trade War

Tags

Ahsan Khalid

Blockchain Developer. An Electrical Engineer with majors in software development. I present forward my insight regarding the latest happenings of the blockchain world. All views on my articles are my own. Email: ahsan@blockpublisher.com or editor.news@blockpublisher.com

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.