Reasons for the bitcoin jump: Trump, Orwell and trade wars

File Reuters

UNITED STATES (VOP TODAY NEWS) — The powerful outflow of capital from China against the backdrop of the escalation of the trade war with the United States provoked a sharp increase in Bitcoin. Is there any chance that the positive dynamics of cryptocurrency will be long-term?

In May, private investors and blockchain geeks were fascinated by the sudden appreciation of a somewhat forgotten digital asset – Bitcoin, which was a hot investment idea in 2017-2018. Since the beginning of the month, its exchange rate against the dollar has soared from $ 5,300 to almost $ 8,400.

Although on May 16 a sharp correction occurred in Bitcoin – the cryptocurrency still costs more than $ 7,000, staying at the maximum level since July last year.

What is the reason for such a fast reanimation of a digital asset? It is obvious that the massive withdrawal of capital from China against the background of deteriorating foreign trade conditions.

Washington and Beijing suddenly broke off trade negotiations for the global market. On May 10, the US authorities raised tariffs on imports from China in the amount of $ 200 billion, and in the future, new duties will be extended to the remaining imports by about another $ 300 billion.

This step provoked the fall of the yuan to the dollar: the rate of the Chinese currency approached the psychological level of 7 yuan per dollar. At the same time, Bitcoin strengthened against the dollar.

Against this background, Chinese banks have tightened the rules for issuing cash dollars to residents. According to rumors, the People’s Bank of China makes customers explain why they need the US currency when withdrawing amounts of more than $ 3,000, although this procedure previously applied only to amounts over $ 5,000. According to media reports, Chinese banks are blacklisting those customers who often receive cash dollars, and do not allow them to withdraw even a couple of hundred “bucks.”

All this suggests that Chinese physical persons staged a rally in Bitcoin, wishing to withdraw capital from the country because of fears of a further weakening of the yuan.

The growth of cryptocurrency could accelerate the closing of short positions by speculators. In late April — early May, short positions on futures for bitcoin on the Chicago Mercantile Exchange (CME) remained at historic highs. Speculators “short” 1039 futures or 5 195 BTC (~ $ 38 million). Probably, the sudden rally of the last few days forced part of hedge funds to buy off their shorts, which spurred the positive dynamics of Bitcoin.

However, these growth factors are short-term. After all, Chinese investors who have bought Bitcoin will sooner or later sell it for dollars.

– What’s next –

In the long run, Bitcoin will remain the very curious social and economic experiment that it is now. The growth drivers of this cryptocurrency can be several factors at once.

Firstly, the refusal of states around the world to withdraw cash in the framework of increasing control over society, increasing tax collection, etc. In this case, cryptocurrencies will be the most convenient and already tested substitute for anonymous cash. As the debate continues, payments around the world are increasingly turning into a non-cash form, strengthening the position of cash fighters.

Secondly, the idea of ​​Modern monetary theory (modern/new monetary theory, or abbreviated MMT), which is widely discussed in the US , according to which the state budget deficit does not matter, because the government can print as much money as it needs.

This theory wins the minds of both Republicans (Trump is already putting all the pressure on the Fed, blaming its too tight monetary policy for insufficient rapid growth of the economy) and the Democrats (presidential candidates from the Democratic Party are proposing to finance the United States infrastructure with printed money). Conservatives predict that MMT will end in hyperinflation, similar to that observed in the Weimar Republic.

Although in Europe and Japan, where this theory has been in use for many years (in Japan – since the 1990s, in Europe – all the 2010s), inflation has not broken up, fears for the results of such a radical experiment exist. The discussion will gain momentum during the US presidential campaign in 2020.

Finally, the third factor is entering the market of institutional and corporate investors . There are already some significant examples – for example, investments from university endowment funds (Yale University, University of Michigan), the launch of an institutional platform by the Fidelity broker (rumored to be very soon), official plans to start trading crypto assets in several European exchanges, Facebook plans to launch its own cryptocurrency and etc.

Institutional investors may be interested not only in bitcoin, but in technology of digitizing assets and eliminating intermediaries. However, Bitcoin can also benefit from this interest.

– Earn –

Taking into account all the above, it would be advisable to keep in Bitcoin about 0.5-1% of all assets in the portfolio. This is not much at all: even if Bitcoin is reset, the losses of the investor will quickly be won back.

However, if the gloomy predictions of Orwell’s followers come true and states want to take control of cash, or MMT will lead to a loss of confidence in the dollar and hyperinflation, then the cost of Bitcoin can increase many times. In this case, even 0.5-1% of assets will be able to turn into 100% of the portfolio.

You should also closely monitor the trends of digitalization of assets. A unicorn company may well appear in this area, and it will be very profitable to participate in its growth.


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