Can Bitcoin Offset A Global Trade War?
The escalating global trade war, triggered by US president Donald Trump, is starting to become more visible. Uncertainty is now a new consideration in many business channels, and cash flow and profit for some are suddenly no longer assured either. In this moment, bitcoin could be a logical solution to many embargo implications.
The coin performs as a hedge currency and is inflation-resistant. Some commentators have thus mooted bitcoin as a logical fort in times of trouble, especially global economic trouble. The US president targeted China, Europe, and other countries, and various sanctions also apply to some of its neighbors in South America. China’s response has been one of mild outrage, saying that Trump has initiated “the largest trade war in economic history.”
Trump Kicking The Giant
A Brookings Institution China scholar, David Dollar, said that America is unlikely to feel the initial pain of a trade war, saying that it is “less likely that the U.S. will feel any immediate economic pressure from the trade fight.” Dollar bases his comments on the currently relatively strong American economy. The Wall Street Journal, however, reported that Chinese president Xi Jinping has tasked a number of government departments with a response to America’s hostilities. In the process, he warned them to prepare for a full-blown trade war.
Other observers are wondering out loud whether trying to bully the world’s largest and most dynamic manufacturing economy is wise. Timothy D. Cook, the Apple CEO, is alarmed by the potential for a serious knock to the company, and has been desperately trying to broker an improved understanding between the leaders.
Apple has 41 stores in China and sells several hundred million of its phones there every year. The company is a huge American success in China, and likely to be a target of visible punishment if China and America continue to trade blows.
At the same time, American farmers are also starting to realize just how much pain they can expect. John Heisdorffer presides over the American Soybean Association (ASA), a heavyweight member of American Agriculture. Heisdorffer went on record to say that
“The math is simple. You tax soybean exports at 25 percent, and you have serious damage to US farmers. As the realities emerge, bitcoin may well offer at least some solutions while the trade war rages. A deflationary asset like bitcoin does offer some protection against new surcharge implications.
Market histories show that during times of uncertainty, investors flock to safe currencies to hedge against their wealth being defrayed by economic uncertainty and persistent inflation.
The latest CPI inflation figures are to be released on July 12, 2018, and pundits fear that the report will contain figures predicting inflation at almost three percent. If accurate, according to Nevil Gibson of the National Business Review, inflation could even be “hitting the highest level in almost a decade.”
Bitcoin To The Rescue?
BKCM LLC hedge fund manager Brian Kelly noted that as a trade war continues, currency values typically decrease. This happens as prices are rising, so Kelly advises holding hard assets under the circumstances. He said that he would opt for possession of assets that are deflationary and also fixed supply, “under this environment.”
Speaking to CNBC, Kelly pointed to bitcoin’s performance over the last few days. He predicts a substantial spike in bitcoin investment as the trade wars escalate, primarily due to bitcoin’s inflation resistance. Bitcoin is also intrinsically inflation-resistant, because only 21 million coins can ever be minted.
Kelly predicts that bitcoin might soon be glowing again, acting as a hedge against the trade war fallout. An interesting use case looms, while enthusiasts insist that the digital currency is entrenched and sufficiently mainstream to void fears of volatility and unanticipated behavior. America has also imposed tariffs on EU steel and aluminum. So far, the EU has responded by punitively taxing $3.25 billion of US goods. In a time of global uncertainty, bitcoin is presenting as a potential hedge against the worst the politicians can do. The coin is currently trading at $6, 596.92.