Could China Be Playing A Role In The Price Of Bitcoin’s Rally To $7,500?
Could China Be Playing A Role In Bitcoin’s Rally To $7,500?
- US-China trade war heating up
- Devaluing Yuan to counter trade effects
- China having an effect on Bitcoin price – likely!
The most common news that came from China has been the ban of Bitcoin mining, however, it’s yet to go into effect as it is still at “China wants to ban bitcoin mining” stage. Other prominent Bitcoin and crypto related activity has been in the form of China’s Amazon Rakuten to launch its own crypto exchange while social media giant WeChat banned crypto transactions.
However, China could have even a bigger role to play in the crypto industry and most importantly in the ongoing rally that took Bitcoin from around $5,000 to $7,500.
During the week, when rally started, the weekend before that US-China trade war escalated after US President Donald Trump announced a hike in tariffs from 10% to 25% on $200 billion worth of Chinese exports. The same day, Bitcoin surged to $6,000 level.
The threat by Trump resulted in global markets taking a hit while during that time, Bitcoin took a hike that showcased BTC as a safe haven while investors have been running off from risky assets.
Bloomberg reporter, Ed Van der Walt also recognized a connection between the escalating trade war and Bitcoin price. “Tariffs create geographic price arbitrages, which encourages smuggling, which drives money off-grid, which fuels bitcoin,” Walt said.
Other potential reasons for China’s involvement in Bitcoin rally could also be the restriction on USD withdrawal. Recently, we reported how as part of its money control measures, China cut down the US withdrawal limitation from US$5,000 to US$3,000.
A Weaker Yuan
As a result of heightened tension regarding trade war, yuan weekend to its four-month low. Selling pressure on yuan is heavy as rising interest is in loading up dollars.
This has the investors watching closely how Chinese policymakers plan to offset the impact of higher tariffs on both the economy and financial markets, the analysts at Citi said in a note. It has further mentioned Beijing's options now include support for yuan and stock markets along with liquidity injections and monetary policy measures.
Using Currency as a Tool in Trade Spat
In the past, big state-owned Chinese banks sold dollars to prop up a falling yuan. Back in 2015, the People’s Bank of China (PBOC) did three consecutive devaluations of the yuan renminbi that knocked 3 percent off its value. This was the most significant single drop in 20 years.
This has been a desperate attempt by China to boost exports as China's currency as since 2005 yuan appreciated 33% against the greenback.
Such signs aren’t being seen yet and though China has yet to reveal its response, Tommy Xie head of Greater China research at OCBC Bank in Singapore said it is unlikely that the country will use its currency (that is “engineer 25% depreciation”) to counter the impact of tariffs.
However, Bloomberg recently reported that Senior Chinese officials are evaluating the potential impact of a gradual yuan depreciation as an option in the trade spat.
All these factors could very well drive China towards Bitcoin and could have even played a role in pushing its citizens towards investing in Bitcoin, contributing to the rally.