In a little, over six weeks the value of Bitcoin has rapidly increased, from what it was at the beginning of the year.
Bitcoin on Monday, 5th August, soured 9% gaining well above the $10,000 mark, to reach a handsome peak of $11,860.
To put this into perspective this surge in the price of Bitcoin is unprecedented as the value of the world’s most well-known cryptocurrency was just a meager $4,900 in April of this year since its fall from the gargantuan peak of $20,000 in December 2017.
What is more surprising is that this sudden rise in the value of Bitcoin comes at a time of severe financial distress in global markets, as the United States and China continue their hostile trade war. Since the March 2018, the global financial markets had been suffering from the trade war between the United States and China, but the recent developments in this economic crisis has just turned the situation from scary to ominous.
On the 1st of August 2019, President Donald Trump announced on Twitter that his administration would levy a 10% tariff on the consumer class goods being imported from China worth $300 Billion, which had largely remained unaffected by the trade war until now.
The Chinese government in retaliation barred Chinese companies from buying American agricultural goods and allowed its currency the Yuan to weaken by 2% to its lowest point since. To make things worse, the U.S. Department of Treasury in a historic move official declared the People’s Republic of China as a ‘Currency Manipulator’.
These developments which all took place within a short span of mere 5 days, have profound implications, one of which is the clear message being sent by both the United States and China to each other, that they will not budge to each other’s pressure. As both the parties have dug into their positions, the risk of this bilateral trade war breaking the global economy, which is already experiencing a slowdown, is no longer a possibility of the distant future.
Both the United States and China have suffered because of the trade war since its beginning in March of 2018. The NASDAQ index fell by 3.5%, suffering its longest daily losing streak since the U.S. Presidential Election of 2016. The new trade tariffs imposed on the 1st of August which will come in full effect on September 1st will target all consumer class goods like; ‘shoes, clothing appeals and personal electronics’. What makes these fresh tariffs more harmful than the ones imposed on Chinese goods previously, is that these tariffs would hit the American middle-class directly, therefore striking at the very heart of the U.S. economy. The farmers of America will also not get to sleep a goodnight’s sleep anytime soon, as the Chinese Commerce Ministry in retaliation of the new American tariffs, has issued orders that have halted the procurement of agricultural goods from the United States.
On the other hand, the Chinese economy has also started to show signs of fatigue as their quarterly retail growth has slouched to 8.1% which is the lowest in the past 15 years, while the industrial production rate fell sharply to 5.4% the lowest in the last 10 years. All of this combined has slowed the Chinese GDP greatly with the recent projections estimating a growth rate of just 6.5%.
An Unlikely Winner
What has surprised many industry insiders more than the trade war’s devastating impact on the global economy, is not only the negligible effect it had on cryptocurrencies at large but also the unprecedented rise in the value of Bitcoin. A memory refresher for those who need it, Bitcoin was the cryptocurrency that shot into the public limelight as it had surpassed the $4,400 mark for the first time in August of 2017. As the months passed the prices of Bitcoin continued to rise as more and more people started to flock around the whole idea of cryptocurrencies and blockchain. Bitcoin hit its peak of $20,000 in December of 2017, effective making many people millionaires.
But the happiness didn’t last a long time as Bitcoin prices went on a downward spiral of losing value through the entirety of 2018, resulting in prices falling to a measly $4,900 in the April of 2019. Many financial experts used this rapid rise and equally rapid fall in the value of Bitcoin to drive home a point they were making since the bringing of the discussion around cryptocurrencies; ‘That due to cryptocurrencies being decentralized and uncontrolled by any globally recognized financial institution, it made the very nature of a cryptocurrencies to be volatile and hence render it into a constant state of frenzy making it a bubble of investment which could burst at anytime.
But the recent rise in global economic tensions is because of the trade war, some economic experts have taken a stance different from before. They say that because of cryptocurrencies not being controlled by any globally regulated financial institution or by national governments, it makes them practically immune to trade wars such as the ongoing US-China one, as cryptocurrencies cannot be weaponized by countries as their respective national currencies can be.
This volatility which was once considered a drawback of Bitcoin has now turned into its biggest strength. As more and more investors are gravitating towards Bitcoin for their transactional requirements. The largest volume of these investors seems to come from the retail sector of the Chinese economy.
As the Chinese government continues to devalue its national currency the Yuan, to survive the onslaught of the U.S. imposed tariffs, which is making the Chinese investors ditch the Yuan for Bitcoin to maintain their margins. Even though there isn’t a reliable way to transact Bitcoin in China 24×7. Because of the clampdown on cryptocurrency exchanges by the People’s Bank of China (PBOC) which has blocked access to all international and domestic exchanges & ICO websites.
According to a recent article by Forbes from May, this doesn’t stop Chinese investors from trading Bitcoin, as investors shift to WeChat groups, where Bitcoin and other cryptocurrencies are traded over-the-counter. The monthly volume of Bitcoin trade through such non-traditional methods have surpassed the $1 Billion mark, with the added fact that China may be responsible for nearly 20% of the global Bitcoin trade. It goes to show that not only has the attempt made by the Chinese government to stop cryptocurrencies from growing failed miserably but has resulted in the rise of cryptocurrencies such as Bitcoin because of their trade war with the United States.
Another reason for the rise of Bitcoin may be in it being seen as a form of digital gold because of it being a non-correlating asset, which makes it seem like a ‘safe-haven investment’ to many investors. Also with Tech giants like Facebook entering the crypto space by announcing their very own currency called; ‘Libra’ back in June. Hints about a renewed interest in cryptocurrencies by Big Tech and the Silicon Valley at large, which will only help the public image of Bitcoin and other cryptocurrencies. All financial indicators hint towards the same possibility, no matter how unlikely it might seem. As the US-China trade war continues to get uglier, the value of Bitcoin will continue to rise.