As history shows, Bitcoin could benefit from the yuan’s devaluation.
Unlike Bitcoin and other free markets, the Chinese yuan market is fixed and somewhat controlled by the country’s central bank. As Wikipedia describes:
“Since 2006, the exchange rate of the renminbi has been able to fluctuate by a narrow margin around a fixed base rate determined with reference to a basket of world currencies.”
The People’s Bank of China adjusts the rate in response to macro factors to ensure that its economy is stable.
Bitcoin can benefit from this, as reports indicate that the official rate for the Chinese yuan has started to fall. BTC can act as a safe haven if this continues.
Yuan reaches lowest price since 2008
Due to the introduction and approval of a new security law in Hong Kong, tensions have grown between the US and China. These tensions could help Bitcoin to appreciate in the coming weeks and months.
The law’s premise is to combat “growing terrorism”, officials representing Beijing said. However, many in Hong Kong and the international community see this as a potential threat to the region’s democracy.
Hong Kong was handed over by the British to the Chinese in 1997, under the stipulation that Beijing would leave democracy in place until 2047. Therefore, the recent law has been controversial, especially among Bitcoin holders.
Members of the White House administration and its advisors, including President Trump, are considering sanctions against Chinese companies.
Nothing has been confirmed, but threats to “react strongly” have affected global currencies.
According to the Twitter account that analyzes financial currency and foreign exchange “FXHedge”, the yuan reached the weakest level since February 27, 2008.
The yuan offshore market has reached the “weakest level since September 2019”. The Twitter account “Yuan Talks” made that observation.
Good for Bitcoin
The yuan falling to these lows could help Bitcoin’s recovery.
Jeff Dorman, CEO of Ark and former investment banker for companies like Lehman Brothers and Citadel, recently wrote:
“Narrative clock! In the spring / summer of 2019, the Chinese yuan fell to historic lows against the US dollar and contributed greatly to the appreciation of the BTC. On the other hand, when the Yuan strengthened in the fall of 2019, BTC fell. Guess who’s falling? “
Do you remember how Bitcoin benefited from the 2019 trade war? But the idea is that the sanctions coincided with Chinese investors taking their money out of the country through the BTC.
This was implied by many analyzes suggesting that Bitcoin has joined gold and other safe havens followed by President Trump’s tariff announcements.
The correlation between the sinking of the Chinese yuan and the recovery of Bitcoin was also present in 2015 and 2016 due to other macro factors. Placeholder Capital partner Chris Burniske suggested that a similar trend could happen again:
If China’s $ CNY continues to weaken against $ USD, then we could have a 2015 and 2016 repeat (pictured below), where $ BTC strength coincided with yuan weakness. https://t.co/ISVJAZMX5O pic.twitter.com/VApfxe1SFw
– Chris Burniske (@cburniske) May 22, 2020
“If the Chinese yuan continues to weaken against the dollar, we could have a repeat of 2015 and 2016 (photo below), where the strength of the BTC coincided with the weakness of the yuan.”