US-China news: how crypto markets reacted to the trade war – and other events
China is a key driver in the crypto markets. From US-China news on the trade war to the coronavirus, here’s how Bitcoin prices have reacted.
There’s a lot of mystery surrounding what exactly drives Bitcoin prices. However, historical trends appear to suggest that the crypto markets do pay attention to global events and geopolitical tensions. From US-China news on trade to the coronavirus, this article will explore how BTC tends to react to Beijing-related events.
US vs China trade war: The impact on Bitcoin
Gold has long been regarded as a safe harbour asset – a place investors go to store their money when economic uncertainty starts to roil markets. Many analysts in crypto circles are now describing Bitcoin as “digital gold” – and bizarrely, despite mind-spinning levels of volatility in the world’s biggest cryptocurrency, it appears that there are some who regard it as a dependable store of value.
Let’s take a look at how US-China news concerning the bitter trade war influenced BTC prices in recent months. We begin in May 2019. Donald Trump, exasperated by the slow pace of negotiations between the two economic superpowers, threatened to raise tariffs on Chinese imports to 25 per cent – a substantial increase from the old level of 10 per cent. That same month, restrictions were placed on Huawei to stop them from selling their smartphones and other products in the US – and Trump’s administration ultimately slapped tariffs on $200bn worth of Chinese products. Now, let’s take a look at BTC prices. They began May at about $5,300 and ended at more than $8,550 – an increase of over 60 per cent.
Some strategists were quick to detect a connection between Bitcoin’s performance and the economic impasse. The founder of the Digital Currency Group, Barry Silbert, told Fortune on May 20: “If you look at over the past five years — when Brexit happened, Bitcoin went up. When Grexit happened, Bitcoin went up.”
Developments in August were also particularly telling. On the first day of the month, Trump had announced plans to slap additional tariffs on another $300bn of Chinese imports. From 1 to 8 August, BTC prices subsequently surged from $10,405 to $11,982 – a 15 per cent jump in the course of a week. But just look at what happened when the US-China trade war took a positive turn on 13 August 2019, when Washington announced that some of these tariff increases would be deferred until the middle of December 2019. BTC slid quickly to $10,106 over a 48-hour period – a decline of 11.5 per cent.
A precipitous fall in BTC prices when good news emerges about the dispute isn’t unprecedented. In mid-December, the cryptocurrency entered red territory when the US and China announced that a preliminary agreement had been reached – with certain tariffs cancelled and Beijing agreeing to buy more American agriculture products.
So, why exactly has BTC become “digital gold”? Well, as analyst Simon Peters told The London Economic: “Bitcoin shares similar characteristics to gold in that there will only ever be a finite amount in existence (21 million), it’s decentralised, its price is not affected by inflation and it has the added benefit over gold of lower storage costs.”
How BTC has reacted to other Chinese news stories
Away from the latest US-China news, it is worth taking a moment to reflect on how the BTC markets have been responding to other developments in China of late. One story that has been dominating the headlines recently is the coronavirus, which has sickened thousands of people, killed dozens, and prompted fears of an outbreak that is difficult to control. In the week leading up to 23 January 2020, Bitcoin fell by almost 4 per cent – coinciding with Wuhan, the Chinese city at the centre of the outbreak, suspending air and rail transport as it entered an effective quarantine period.
According to analysts, this has been a rare scenario where BTC has largely fluctuated in line with the wider stock market. As reported by Currency.com, travel and tourism-related shares were among the hardest hit as the markets tried to digest news concerning the ever-worsening crisis. Cryptocurrencies have been around since 2009, but Asian investors have far longer memories than this – not least because of the deadly SARS virus that killed almost 800 people in 2003.
Given China’s complicated relationship with crypto, it’s natural that the market is especially sensitive whenever statements about the industry are made by high-ranking officials in Beijing. Case in point: last October, President Xi Jinping declared that the country should “seize the opportunity” and embrace blockchain, the self-same technology that underpins Bitcoin. How did the market react, you ask? Well, Bitcoin shot up by a 12 per cent over a single day – helping the cryptocurrency to recover from a five-month low.
This was quite an unusual lurch into green territory – not least because Xi was talking about blockchain and not Bitcoin. But even though crypto trading was still formally banned in China at the time, analysts such as Galaxy Digital founder Mike Novogratz regarded his comments as the “credentialization” of crypto and blockchain alike.
When all is said and done – irrespective of whether you’re talking about the US-China latest news, the coronavirus or Beijing’s stance towards BTC, it’s undeniable that the country is a key driver in crypto prices, and is likely to remain so into 2020 and beyond.
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