A contributing author and Asian markets analyst on Forbes has pointed out that the non-correlation of cryptocurrency–that digital assets fluctuate to their own market devices–does not tell the full story. Instead, William Pesek argues that prices for Bitcoin are moving with the price of the Chinese Yuan versus the U.S. dollar, as opposed to the dominant assumption being placed on USD movements alone. According to Pesek,
“There’s an easily trackable correlation between bitcoin and the dollar/yuan exchange rate…No, bitcoin doesn’t track the dollar’s zigs and zags–except when we’re talking about its moves versus China’s currency. A sliding yuan tends to be bitcoin positive.”
“As the yuan weakens, after all, moneyed mainlanders are increasingly desperate to spirit their wealth beyond the prying eyes of Beijing’s tax collectors.”
The argument for the relationship between the Bitcoin and the USD/Yuan exchange rate hinges on the voracious appetite of Chinese investors for Bitcoin and digital assets. Despite the Chinese government and President Xi’s massive crackdown on Bitcoin, which culminated in the outright banning of BTC trading and initial coin offerings (and rumors of mining to be targeted next), savvy Chinese investors have continued to find ways to buy digital assets at an impressive pace.
Pesek also points out that the brewing trade war between China and the United States, stemming from the failed negotiations of both President Trump and President Xi, have thrown the USD and Yuan into flux. Similar to how the looming possibility of a no-deal Brexit pushed European investors into Bitcoin, the deterioration of U.S.-Chinese trade relations has mainlanders looking to BTC and digital assets favorably. Despite its historic volatility, Bitcoin is beginning to resemble the digital gold safe haven that has long been held up by supporters.
However, while the uncertainty kicked up over a possible trade war is good news for Bitcoin bulls, it also harbors deeper implications for the broader global economy. Pesek anticipates that fiscal policy by President Trump and the Chinese government will force further deterioration, and ultimately lead to even greater investment by the Chinese mainland into Bitcoin.
As evidenced in places of extreme economic mismanagement, such as Venezuela and Argentina, cryptocurrency has become an alternative asset for investors looking to harbor their funds against uncertain government fiat. While the U.S. and China represent two of the more historically stable economies, and the global powers driving financial markets, the lack of confidence inspired in the fluctuating USD and Yuan could make otherwise conservative investors take a glimpse at the digital gold of BTC.
At the Consensus 2019 event, billionaire investor and crypto bull Mike Novogratz shared his opinion that Bitcoin had likely maximized its utility as a store of value asset. While Novogratz commenting more on the room for innovation in Bitcoin as digital gold, it remains to be seen how digital assets handle a possible fortuitous turn in the coming years, with the combination of Brexit, a U.S.-China Trade war and inevitable recession looming on the horizon.