Will The US-China Trade War Be A Boon Or Bane For Bitcoin And Crypto?

US-China-trade-war

An overview of the biggest global economic crisis in 11 years and how it affects cryptocurrency.

The Backdrop

The onset of these events began on 5th August 2019, when China let Yuan fall below 7 against the dollar. As a result, the U.S treasury department, almost immediately declared intentions of labeling China as ‘currency manipulator’, in hopes to get the legal go-ahead to impose taxes on Chinese goods. But on 8th August, the PboC relieved investors’ fears by buying more Yuan to stabilize its value.

That makes the U.S Treasury Department’s statement contradict its description of currency manipulation, which is to weaken the domestic currency, but the PboC’s step was to support the Yuan. Meaning China had taken steps opposite of market manipulation.

Based on this, Trump’s Administration case against China will not be supported by the WTO or IMF resulting in the US becoming vulnerable to depreciative international penalities if it goes ahead with declaring China a currency manipulator.

Ripple Effect

A weaker Yuan causes countries that trade with China to weaken their currencies as well which in return will cause their trade partners to do the same. However, they will not actually weaken their currencies, they will cut interest rates which will decrease the demand for the currencies.

All these global economic events resemble the economic events of the 1930s that flamed the fire of the Great Depression.

Onto the influence on Bitcoin

During the Great Depression, people invested in gold to ensure monetary stability. Bitcoin and cryptocurrency in today’s age are serving as the digital gold for investors who worry for their money. As Bitcoin has digital properties that resemble those of gold and other hard currencies, like being hard to mine, fungible, scarce, and transferable.

All of this contributes to the ‘buy Bitcoin argument‘. Bitcoin is regarded as a haven to take shelter from the global financial system’s political-economic turmoil.

Although it seems a perfect solution for the current economic crisis, it would also be foolish to conclude that Bitcoin has a stable future. Due to the investment outflows caused by this crisis, governments will become alert about Bitcoin acting catalyzer for capital outflow and might resolve to ban it or restrict its flow heavily.