Strong Connection Spotted Between Bitcoin Market and Offshore Renminbi (RMB) Futures
So far, 2019 has been a good year for Bitcoin. Its initial rise out of a long period of stagnancy in April began its journey to bullish views, support, optimistic analyses and even more recorded influx into the market. Today there is a lot more institutional investment into the cryptocurrency sector than there was before and most of this could probably be traced to the good press and bullish views the coin has had in recent times.
Much recently, many analysts drew a parallel between Bitcoin’s price surge and the ongoing trade war between two of the world’s biggest economies, the United States and China.
According to analyses, The Chinese Yuan was seen by a lot of traders and business people in China as a potential casualty and these people decided to pitch their tents with Bitcoin, despite many efforts by the government to stifle the growth and development of the country’s cryptocurrency sector. However, odd as it might be, another parallel can be drawn between the performance of Bitcoin and that of the Offshore Renminbi Futures Market showing a few similarities.
The Offshore Renminbi Market
The Renminbi is the official national currency in China and has been so since the People’s Bank of China (PBoC) officially recognised it since 1948. The popular Chinese Yuan (CNY) is the basic unit of the Renminbi but is generally still used to refer to the official Chinese currency.
Officially initiated in 2003, the Offshore Renminbi Market was launched to support trade between China and other countries. It was initially setup in Hong Kong alone but at the moment, Singapore, Taiwan and London all have offshore RMB markets.
Onshore rates are largely controlled by a country’s central bank. With the offshore market however, rates are almost totally decided by what is obtainable in the foreign exchange markets. China’s use of an offshore market was deliberately done to keep the value of its foreign investments far from what’s obtainable within the country. This was a fantastic way to keep the Chinese economy alive in the event of a global recession. Another advantage to this is that the currency also becomes a lot stronger and has a wider reach outside of China.
What Does The Offshore RMB Market Have To Do With Bitcoin?
The number one digital asset in the market has been performing almost the same way with the offshore RMB futures market. For more than eight months now, even though both assets are not exactly connected and generally operate in different climes. When the Bitcoin Cash hash war began on the 15th of November last year, the price of Bitcoin began dropping as an effect. However, what’s a bit surprising is that the offshore RMB futures market also followed suit.
And if that isn’t enough to conclude a sure correlation between both markets, consider April 2019. As stated earlier, Bitcoin began a price rally in early April this year, signifying the beginning of a prosperous series of events that eventually ended the 2018 crypto winter. The bear market ended with Bitcoin’s rise and it was noticed, about a month later, that the offshore RMB market also began to rise too. Weirdly still, Bitcoin also recently began to correct itself after its multiple price jumps and the same thing again happened in the offshore RMB futures market.
Was this Happenstance?
It just might be accurate to assume that there was some front-running going on in the markets, most likely that for a while the offshore RMB market was being front run. Another theory could be that both markets became inevitably connected because there were many players investing in the BTC market as well as the offshore RMB market. There has been a lot of interest in the Bitcoin market from Chinese platers as it was noted that sometime in April, as much as $127 million in Chinese Yuan, streamed into the Bitcoin market within 24 hours.
Back in November when Bitcoin prices fell as a result of the hash war, the same negative outlook could easily have been spread into the offshore RMB market, especially because a lot of the investors in both markets are the same. This same tendency for the spread of feelings and outlook could also be the reason why the offshore RMB market picked up soon after Bitcoin’s recovery.
At the moment, there’s a good chance that these connections would continue but for now, fingers are crossed.