- The significant part of bitcoin’s current increase is assumed to be American economic brittleness.
- Heightened tension between the US and China can begin to the heightened need for bitcoin.
- It’s still not decided as to simply how ‘safe’ bitcoin is as a potential haven.
US-China stresses have increased in recent weeks. The US economy has decreased in parallel, while some analysts consider that it has also helped to drive the price of bitcoin (BTC) to just below USD 12,000.
While the additional decay of US-China connections could profit Bitcoin, crypto business figures told cryptonetwork.news that bans against China could potentially result in BTC being used as a hedge. Simultaneously, the development of a digital yuan could push the US into developing a digital dollar, which might popularize decentralized cryptocurrencies.
Nevertheless, commenters seem to hold that it will be the continuing economic downturn and the sliding US dollar — that will benefit bitcoin the most. By contrast, US-China tensions will mostly be a symptom — and catalyst — of underlying economic issues.
More large-scale circumstances
Following moving sideways for around two months, bitcoin’s price rose since July 25, when it was around USD 9,550. It had since expanded close to USD 12,000, during a period when Donald Trump has threatened to ban TikTok, and when both the US and China ordered each other to close their respective consulates.
For some commentators, such tensions were a factor in the recent rally, even if they weren’t the primary element. This is a view held by Roger Huang, a cryptoasset analyst, and writer. “I think it’s a factor,” he stated. “But most of it is a flight away from the USD, which is weakening in value.”
Huang said that the significant factor in bitcoin’s recent rise had been American economic fragility, of which heightened US-China relations are a symptom.
“To the extent that the USD is weakened because of the overhang of US-China trade relations, I think it also has a lot to do with monetary expansion, the United States and COVID-19.”
US-China tensions will likely worsen before they get better, particularly with Donald Trump in the White House. Aside from effectively forcing ByteDance to sell TikTok to Microsoft (in the US, Canada, Australia, and New Zealand), the US has recently sanctioned Hong Kong Chief Executive Carrie Lam for carrying out Chinese “policies of suppression.”
A ramping up of tensions could boost bitcoin, according to Arcane Crypto’s Head of Research, Bendik Norheim Schei.
“Increased tension between the US and China can lead to increased demand for bitcoin,” he told Cryptonetwork.news. “If the US imposes sanctions, which they often do, it is likely that some will look to bitcoin as a workaround.”
Norheim Schei added that the US is in a unique position to sanction countries, given that the USD is dominant in global trade. “But with BTC and other alternatives, they lose that power.”
A full-blown trade war will result in economic uncertainty.
This could be good for bitcoin insofar as any doubt weakens the US dollar, yet it’s still not settled as to just how ‘safe’ bitcoin is as a possible haven.
“On the one hand, there are those looking to bitcoin as a hedge, and both bitcoin and gold have been doing well recently,” Norheim Schei said.
“On the other hand, bitcoin might still be more in a ‘risk on’ category than a macro hedge, currently benefiting from easy monetary policy, but potentially suffering from global economic instability.”
Digital fiat and Bitcoin mining
Escalating US-China trade tensions may have several additional effects beyond only increasing demand for BTC. One of these may be a further de-concentration of Bitcoin mining away from China, which, according to some estimations, still accounts for 65% of Bitcoins’ hash power.
Commenting on the current mining landscape, digital finance consultancy BitOoda suggested that poor US-China relations — potentially involving sanctions and capital flight (from China), could reduce China’s market share.
“We recently assessed that about 50% of global mining power capacity is likely in China,” said a spokesperson for the New York-based company. “We commend our colleagues and partners who are building a strong Bitcoin mining capacity in North America, and look forward to helping drive the further advancement of this critical aspect of the Bitcoin ecosystem.”
An added notable outcome of tensions may be rising economic and monetary nationalism. According to Roger Huang, this could be either good or bad for Bitcoin.
“Growing digital nationalism might creep in, legislators might want to ‘protect the US dollar’,” he said. “To the extent that a ‘US dollar’ and digital dollar nationalism/chartalism take hold, that could result in strong words and perhaps legislation that scares off US-based crypto companies.”
Fortunately, Huang suggested that this would be a worst-case scenario. “But if you’re US-based, you’re likely already trying to build something that cozies up to the system already to a certain extent (Coinbase, for example), so it’s going to be minimal unless something big happens.”
Monetary nationalism also implies the creation of a digital dollar and digital yuan, which would potentially compete with each other.
“China is already going pretty full-steam ahead on DCEP [digital currency electronic payment] or the digital yuan,” said Huang. “[Tension] might increase China’s attempts to internationalize the RMB, but that’s been something that’s been happening, digital currency or not.”
It’s questionable whether this would help BTC since neither is likely to be cryptocurrencies in the decentralized sense. But if the emergence of digital dollars helps popularize the concept of cryptocurrencies — and if USD experiences notable inflation — more individuals could be driven to Bitcoin.
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