It’s safe to say at this point that one of the main catalysts that has pushed Bitcoin to become one of the best performing assets of 2019 is the ongoing fear of the U.S-China trade wars. Almost every major cryptocurrency analyst has pointed to this and according to recent reports, things could get even messier for the global economy. And even better for Bitcoin.

The US-China trade war could create an even bigger domino effect throughout the world

Last Monday, the Chinese Yuan inexplicably fell below 7.0 yuan to the dollar. A ratio not seen for over a decade. This sent global markets throughout the world into a panic and prompted the U.S Treasury to label China a currency manipulator. A move not seen since Bill Clinton did it back in 1994. This move gave President Trump authority to seek punitive sanctions against China, something he’s called for since his election. However, as it turns out fears were overblown and on Thursday, The Bank of China bought more Yuan to stabilize its value, at least for now. But the damage had already been done. Market sentiment took a huge hit and asset classes across the board were down as a result of this news.

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The Domino Effect

Although from a practical standpoint, last week’s news made no difference, it has reassured investors fears that in event of a global economic crisis, politicians would not act rationally. Sentiment alone is enough to influence markets in a major way.

Crypto sentiment on 5th August. Source: CryptoMood twitter

China may be only directly targeting the US with their tactics, but the ramifications would be wide-spread far beyond only the US. A weaker Chinese Yuan means that every other nation that’s also a trading partner with China would be at a significant disadvantage. Given China’s massively booming economy and influence, it’s possible that all of China’s trading partners, U.S and otherwise, would have to weaken their currencies in response. And then the trading partners of those nations would have to do the same, until it reached every last nation and sovereign currency.

Weakened currencies across the board would do wonders for Bitcoin for two reasons. First, Bitcoin is usually measured against the USD and other national currencies. Weakened national currencies mean that Bitcoin’s value will inherently go up by default of other currencies going down. Even if the real value of Bitcoin doesn’t change, even if no new investors buy Bitcoin. It will go up by virtue of every other currency going down. Second, when sovereign currencies go down, many citizens flock to Bitcoin to protect their hard-earned value. This has already played out in countries currently facing a currency crisis such as Venezuela and Turkey. When the global crisis arrives and there are more nations facing a currency crisis than not, undeniably trillions of dollars will flow into Bitcoin from institutional investors and everyday citizens fed up with their governments alike.

A weaker Chinese Yuan could lead to weaker currencies around the world causing a mass flight into Bitcoin

The Bearish Case

As with every news article and catalyst, there is a bearish case scenario as well. Some analysts fear that the rise of Bitcoin will catch the eyes of unhappy politicians and lawmakers around the world, fearful of losing their power of the global financial system. They will in response attempt to pass legislation that bans or at least restricts Bitcoin around the world. In some ways this is already happening. U.S Congressman Brad Sherman has attempted multiple times to ban cryptocurrency trading and mining in the U.S. Donald Trump recently tweeted out his distaste for cryptocurrencies. And the government of India has introduced legislation that would legally punish Indian citizens for holding cryptocurrencies. Unfortunately for them, as we’ve covered in one of the previous articles, Bitcoin is notoriously hard to ban due to its decentralized nature. And as the war on drugs and alcohol has so painfully reminded us, banning certain substances doesn’t prevent people from using it illegally. In fact, it could even produce a “Streisand Effect” where it piques the public’s interest about Bitcoin and thus cause its popularity to surge even further.

The bearish case scenario is that politicians like Trump and Xi threaten to ban or restrict Bitcoin legally

Conclusion

The U.S-China currency wars may center around these two world superpowers. But the ramifications stretch far beyond these two nations. They could create a domino effect and quite literally affect every country in the world. Although we’re not yet at a point for major concern, the market sentiment reaction was enough to cause global panic in assets across the world. If that happens on the crypto market, CryptoMood users’d be the first to know.

CryptoMood is the perfect app for gauging market sentiment as it uses a cutting-edge AI algorithm to pull analysis from 50,000+ different sources giving you early trading signals to make your best trading decisions possible. You can download the CryptoMood app for free on iOS and Google Play here:

Written by Ezra Yao