Unless there is a dramatic change of status quo in the raging US-China trade war, the Chinese Yuan is expected to further weaken beyond the key psychological threshold of seven-per-dollar rate, according to a new Reuters poll of foreign exchange strategists.
If past trends are anything to go by, any new development along those lines could push an increasing number of Chinese investors to flock to the crypto space in the hope of waiting out the storm.
Suffice to say, that underlines quite a positive outlook for the decentralized digital economy — Bitcoin, in particular — as the asset class has time and again demonstrated a negative correlation with major fiats such as the Yuan or the USD.
Growing Chinese Activity in the Crypto Space
It’s been two years since the Chinese government banned cryptocurrency exchanges from operating in the country fearing that the risks emanating from unregulated currencies far outweigh their benefits.
Notwithstanding the restrictions in place, investors in mainland China always seem to find new and secure ways to indulge in the forbidden. All thanks to, yes, you guessed it, offshore funds based in Hong Kong and Singapore.
The volume of Bitcoin traded by mainland Chinese investors was already consistently on the rise over the past few months due to the uncertainties looming over mainstream financial avenues. And now that growth has shot up to a whopping 50% in the past week-and-a-half as Beijing stepped back from managing the Yuan, claims a Financial Times report citing new data provided by Babel Finance, a Beijing-based financial services platform for cryptocurrency investors and miners.
Taimur Baig, the chief economist for DBS in Singapore, agrees with the growing consensus among industry insiders that the spike in Chinese trading activity has been one of the key drivers of Bitcoin’s recent rally into five-figure valuation. (Other contributing factors include aggressive monetary easing by central banks, Facebook’s entry into the crypto space with its own digital currency Libra, just to name a couple).
“We have seen a big rally,” Baig told the Financial Times, adding that the falling Yuan paves the way for a “serious use case for crypto.” According to him, this is one key underlying trend that the market has to carefully observe in the coming days.
Meanwhile, it is not yet clear whether Chinese investors are investing in digital assets to hold or to merely convert them to other asset classes. Regardless, Bitcoin seems to have grabbed on to this opportunity to project its ability to better navigate liquidity crises as compared to most conventional assets.
What’s your take on the falling Renminbi and its negative correlation with the crypto space? Do you think Bitcoin will witness a more aggressive growth spurt in the coming weeks if the ongoing trade war shows no signs of an immediate de-escalation? Share your thoughts in the comments below.
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