Such circumstances should be perfect for bitcoin to spread its wings since the cryptocurrency is not connected with the global financial system and cannot be influenced by any risks of a political nature. However, there are a lot of hurdles for both bitcoin-users and the so-called “nocoiners”.
So now let us make a more deep analysis of the global financial situation.
On August 5 the value of Chinese currency fell below RMB7.0 to USD. The US Treasury Department reacted immediately. They called China a “currency manipulator”, as a result of which the US President Administration received legal permission to impose penalties against Chinese. This caused a looming threat of a currency war, which scared markets to death.
Three days later the PBOC (People’s Bank of China) managed to allay investors’ concerns. In order to stabilize renminbi’s values, the bank started buying more of this currency. By doing this the PBOC showed that it was not going to use the currency as a trade weapon.
The concept of “currency manipulator” did not prove since even according to the Treasury Department it implies one-sided, persistent intervention in markets in order to undermine the value of the domestic currency. However, this was not the case with China. Renminbi’s fall was caused by PBOC’s reducing its prior support.
Basing on this fact, neither WTO (World Trade Organization) nor IMF (International Monetary Fund) have any reason to support Trump Administration’s statement that China is a currency manipulator. Therefore, if the United States decided to get back at China for that, they are would face serious international sanctions.
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The Knock-on Effect
The low value of renminbi means bad news for all the countries trading with China. As a result, they will need to weaken their own domestic currencies, and their trading partners, in turn, will have to do the same. This is the “domino” principle in action.
The states with free-floating currencies will do this via interest rate cuts, as a result of which demand for their domestic currency will decrease. In such cases, central banks simply note that the country’s economic perspective is seriously undermined by the global trade war.
This approach has already been used by India, Thailand, and New Zealand. Bond markets are already raising alarm since the profitability of the ten-year U.S. Treasury note is lower than the yield on the 3-month Treasury bill. This is a signal of upcoming recession and weakening of the monetary policy from the Federal Reserve.
The situation with low interest swallows banks funds. As a result, USB (a Swiss bank) is charging major depositors a fee for storing their money.
The worst outcome of this situation is that this currency war resembles the 1930s – the Great Depression. Fortunately, nowadays the economy is much more globalized, not to mention the Internet. According to politologists and economists, this interconnectivity will force people and companies to resist any type of conflict, including the economic one.
However, there is a downside to this process as well. Centralized data-mining algorithms of Facebook and Google have developed echo chambers of dopamine-addicted group-thinkers. Together with fake news and disinformation bots, they have undermined the main media publications around which this establishment once revolved.
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To Buy or Not to Buy (Bitcoin)
On the one hand, the World Wide Web has provided an opportunity for transnational groups with loyalties that transcend their states’ interests. However, this transfer has contributed to a backlash from the hardline state power supporters.
A bright illustration of it can be China’s crackdown in Hong Kong when participants of the protest were trying to neutralize the government’s digital surveillance. Trump’s militaristic rhetoric is another example of this.
In the period of the Great Depression, people used gold as a means of securing their funds. Unfortunately, at that time cryptocurrency did not exist. Nowadays a person looking for a safe place to store the money has a digital alternative to gold.
Bitcoin’s properties are the following: scarcity, transferability, fungibility, and difficulty to be mined. Just like those of traditional currencies, and even better. Experts say that inevitable halving in bitcoin’s supply is likely to put the cryptocurrency’s stock-to-flow ratio above that of gold.
Now let us compare bitcoin with other altcoins to assess its advantages. One may draw a parallel with gold and silver. Bitcoin has a more reliable reputation among cryptocurrency users. However, there are people who consider software forks to be undermining the cryptocurrency’s digital scarcity.
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This is the main reason for buying bitcoin now since a huge number of people regard this cryptocurrency as the most reliable way to protect oneself against the global financial crisis.
In recent months, bitcoin has not sold off despite the real-world assets coming under pressure. The departure of unexperienced speculators, who joined the market during the “crypto rush” in 2017, was likely to have left the sector at the mercy of more hardcore Hodlers.
Nevertheless, it would be a mistake to believe that the path from here is directly upwards. The main risk here has its roots in a profound, drastic regulatory backlash.
The point is that state authorities, noticing investment outflows following the financial crisis, will get scared that bitcoin might facilitate capital flight. Therefore they are willing either to ban it or to implement restrictions on exchanges.
The global regulatory reaction will undoubtedly not be able to kill the “Crypto money-box”. Therefore, the best current forecast is the following: market volatility is not going to stop anyway.
As mentioned earlier, the blockchain technology is going to be used as one of the US energy sector’s main tools.
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