Chinese Yuan Tumbles, A Break Through $7 Would Get “Bitcoin Bulls Excited”
- Yuan weaker because of the tremendous pressure from the U.S. side
- Historically, Bitcoin rallied amidst capital controls, inflation, and capital flight
- After the most recent surge in BTC surge amidst US-China trade war, bulls can take over the leading cryptocurrency in the event of Yuan breaking the $7 level
Since May 13, Chinese Yuan has been trading in a tight range of 6.90 and 6.95 which finally broke down and tumbled 0.5%. The biggest in three weeks to a low of 6.962 vs the US dollar, the lowest level since November 2018.
This drop came after the chief of China’s central bank said Beijing has “tremendous” room to adjust it's monetary policy if the ongoing trade war with the US escalates further. It has also been hinted at that there’s no line in the sand for the currency which means the key “psychological” level of 7 does not exist for Yuan in times of trade war.
“We have plenty of room in interest rates, we have plenty of room in required reserve ratio rate, and also for the fiscal, monetary policy toolkit, I think the room for adjustment is tremendous,”
said PBOC governor Yi Gang in an interview with Bloomberg in Beijing.
Talking about the yuan move, Yi said, “it’s a little bit weaker because of the tremendous pressure from the U.S. side.” On the question of if there’s a red line for the exchange rate, Yi said no number is more important than another.
This was exactly what FX traders needed to hear and “it’s possible that the yuan may breach that level if the trade talks collapse,” said Gao Qi, a currency strategist at Scotiabank in Singapore.
Even Yi couldn’t outrightly deny that trade war could lead to devaluation of Renminbi which he says will continue to be “stable at a more or less equilibrium level.” He further adds that
“a little bit of flexibility of renminbi is good for the Chinese economy and for the global economy because it provides an automatic stabilizer for the economy.”
With China moving further to allowing the yuan to slide below 7, it won’t go unnoticed by the White house rather it could lower the USD too.
How will it Affect Bitcoin?
We have already seen the effect of the trade war between the US and China benefitting Bitcoin. Historically, there have been many such instances such as the early 2013 Cyprus banking crisis which led BTC to rally.
As Adamant Capitals Tuur Demeester shared in his latest post, during the winter of 2015 to 2016 when the yuan weakened 10 percent, there were significant price premiums on Chinese bitcoin exchanges that validated that Bitcoin was used by Chinese investors as a portfolio hedge as a vehicle to move money out of the country.
Economist and trader, Alex Kruger says, yuan will likely break through $7 at some point this year which is less than 1% away. Though he says “Beyond triggering stops & barriers, and causing temporary panic, it doesn't seem the breakout would be a major event,” he expects it would get the Bitcoin bulls excited.
The Chinese yuan hasn't traded above $7 against the dollar since 2008. In July 2008 China ended its crawling peg policy of gradual yuan appreciation, and pegged $USDCNY around 6.83. pic.twitter.com/lb2m78hCz2
— Alex Krüger (@krugermacro) June 7, 2019
Kruger further explains how this level was the last hit in 2008. However, analyst, Joe McCann says,
“Short term a non-event. Longer term, shows PBoC's inability to control its currency, economy and ultimately instill confidence.”
Though it is hard to know how exactly Bitcoin will move, an upwards movement is expected given the way China has driven the Bitcoin rally.