Donald Trump decided to impose tariffs on many commodities from many US trading partners. Those partners (which include some of the USA’s closest allies) have retaliated by imposing tariffs of their own on American goods.
It’s a trade war, and it’s only starting. Chinese officials told the Wall Street Journal that this is “the largest trade war in economic history.” The consequences are already being felt even at the street level. Coca Cola’s price has risen because some of the ingredients it needs to make its iconic soda are now subject to such tariffs.
The current trade war will affect many aspects of life inside and outside the USA, so the natural question to ask, if you’re interested in cryptocurrencies, is how the trade war will change things for crypto coins?
More particularly, how will it change things for Bitcoin? Since Bitcoin has been a safe-haven for some investors when economic turmoil shows its face, would it be accurate to assume that the economic war will make investors turn to Bitcoin once again? That would create a considerable new demand for the token and could drive the price up very quickly.
Experts, neutral observers, and analysts don’t agree on the way or amount in which the current international situation is helping the currency. And, of course, it must be said that the cryptocurrency market remains unregulated for the most part, highly speculative, and it’s not an investment to be taken lightly. Nobody should get in the game unless they’re ready to lose.
Economic uncertainty: Bitcoin’s raw material
BitBull Capital’s CEO, Mr. Joe DiPascuale believes that economic turmoil is at the heart of Bitcoin’s reason of being.
“Bitcoin was forged in the fires of economic uncertainty; It was created in direct response to the shortcomings of the traditional financial system. It makes sense, then, that any event that highlights the potential vulnerabilities of a national currency also tends to magnify the strengths of a borderless currency such as Bitcoin.”
“The uncertainty created by a trade war between the U.S. and China could certainly catalyze Chinese citizens to increase their holdings of Bitcoin and other cryptocurrencies.”
Mr. DiPasquale is not alone in his opinion. Anatoly Berdnikov, CEO, and founder of Bit.team (a decentralized digital assets exchange) has a point of view that echoes many of Mr. DiPasquale’s central ideas.
Mr. Berdnikov thinks that “Concerns about an escalating trade war with Trump and its implications for the Chinese economy” have been a “major catalyst” for Asian investors, who have been flocking to cryptocurrency since it is “seen as more resilient to inflationary pressures and the potential devaluation of the Chinese Yuan.”
But when it comes to Economics, every coin has another side. Not all analysts and observers are so confident that the trade war will help Bitcoin. Crypto Asset Management’s Tim Enneking opinion is,
“I would agree that these concerns are a ‘factor,’ but not that they are a ‘major catalyst,'” then he continued to explain “On the other hand, were a full-scale trade war to break out (in the form of immediate, high tariffs) and economies begin to suffer from that, then the effect would be more pronounced.”
Sean Walsh, from Redwood City Ventures, also maintains that the issues around trading need not be the most influential variable on cryptocurrency prices. He said,
“While the intensifying global trade war(s) should be on the active investor’s radar, I believe the re-emergence of rapid price inflation is a larger driver of recent cryptocurrency price appreciation.”
“I suppose the trade war could be driving demand for Bitcoin in certain Asian countries,” Mr. Walsh continued.
“However, I suspect that effect is relatively small, as the rationale for buying crypto because of a trade war is not particularly clear or direct.”
Similar doubts were expressed by B2C2’s chief risk manager, Mr. Scott Weatherill.
“I don’t think it’s a major driver personally,” emphasizing that the “statement is fairly hard to back up with evidence.”
“If anything, I would suggest that people would find BTC attractive in that context as a trade war would heighten geopolitical risks.”
So the jury is still out, and this is not a subject in which anybody should expect any consensus to appear soon. If the trade war indeed benefits the crypto markets, the chances are that the mechanism will be very subtle and not easy to analyze or detect directly.
Image Courtesy of Pixabay.