The US and China are officially engaged in a trade war with the US firing the first shot with a series of tariffs against Chinese products. The last straw was the 25% tariff that the current administration levied on more than 800 Chinese products, to an estimated cost of $34 billion. China retaliated, slapping a series of tariffs of its own, and insisted that President Donald Trump had “started the biggest trade war in economic history.”
For all the uncertainty being caused by the trade war, there is now growing optimism that Bitcoin may very well benefit from it. Capital CEO Joe DiPasquale argues that this is because Bitcoin was “forged in the fires of economic uncertainty.” He goes on to say of Bitcoin " [that] it was created in direct response to the shortcomings of the traditional financial system. It makes sense, then, that any event that highlights the potential vulnerabilities of a national currency also tends to magnify the strengths of a borderless currency such as Bitcoin."
In response to this uncertainty, DiPasquale suggests that Chinese citizens will likely turn to Bitcoin and altcoins. Investors all around Asia are expected to do the same, according to Bit.team CEO Anatoly Berdnikov, as anxiety over the intensifying trade war have driven Asian investors to explore cryptocurrency. The reason for this is because Bitcoin is believed to be “more resilient to inflationary pressures and the potential devaluation of the Chinese Yuan."
Evidently, DiPasquale and Berdnikov are right. The trade war officially began on July 5, and the price of Bitcoin that day was tracked by Coindesk at $6,531.20. Bitcoin’s price rose to $6,755.56 two days later, dropped to $6,349.04 only 10 days later, and then surged to $8,397.63 on July 24. It has trended downward ever since, although it has stayed over $7,000. For context, the price of Bitcoin for June largely hovered between $6,000 and $6,800, and even fell to a year-low $5,848.26 on June 28.
Interestingly, the price of Bitcoin had a similar uptick during the first week of March. That week, perhaps not coincidentally, was right around the same time that fears of a trade war began to fully heighten, mainly fueled by speculation that Trump’s aggressive trade policies may lead to a trade war (which did indeed happen four months later).
Recall that the price of Bitcoin, and other cryptocurrencies, plunged in January when the Chinese government made official their plan to crackdown on digital currency production. It was a quick decline, from $16,937.17 on January 5 to $6,914.26 a month later. The fact that such regulation affected Bitcoin is only natural; given how much of Bitcoin production occurs in China. The Washington Post reported that Chinese miners accounted for approximately three-quarters of global cryptocurrency production at that point, and about a fifth of all cryptocurrency transactions. FXCM explain that regulation is one of several factors that contribute to the intense volatility of Bitcoin. Since the “birth” of Bitcoin, in fact, governments all around the world have seemingly made a conscious effort to regulate digital currencies, and the Chinese government have been the most aggressive in this regard. Their January 2018 crackdown on cryptocurrencies was not the first, as they had already imposed in September 2017 a comprehensive ban on platforms that allow the buying and selling of virtual currencies in China. The irony here is that China’s decision to reciprocate Trump’s tariffs is now actually helping Bitcoin’s price to surge upward yet again.
Nevertheless, the price of Bitcoin remains and will continue to be volatile. With that in mind, we are encouraging Bitcoin investors to proceed cautiously, as we advised before in ‘The Big Bitcoin Price Recovery - Will April See Bitcoin Rebound?’.