OFF INTO THE WILD WET YONDER How does this...
China Making Sure Gold and Bitcoin Not Forgotten
China’s markets have been in meltdown mode since the middle of July, and the People’s Bank of China (PBOC) has acted in accordance with the rest of the world’s central banks by spraying liquidity generously and devaluing the yuan’s fix to the dollar. As of now, it’s difficult to tell if it’s working, but one thing is for certain, investors are being reminded that safe haven assets like gold and (yes) Bitcoin are not going to be forgotten or written off anytime soon.
Like every other market, once China’s stock and currency markets went into a tailspin, commodity markets followed. Although futures have been flashing red all yearlong, things took a turn for the worse fearing a Chinese recession was too doom-and-gloomy to support.
Gold has the benefit (or the handicap depending on your perspective) of falling under several different categories—commodity, safe haven asset, and in certain circles, currency. This can occasionally end up causing havoc on its price action, especially when fear is fresh on everyone’s mind. But once the dust settles, gold is the first to recover. This time is no different with gold spiking up over US$100 since the beginning of the month.
Bitcoin is also witnessing this price action. Although Bitcoin technically only shares the currency role with gold, it has also been widely touted as a safe haven asset ever since the Arab Spring back in 2011.
Chinese investors have obviously caught on to this idea, as we have seen BTC/CNY price volumes move higher during the heat of the stock and currency markets downward spiral. As of now, Bitcoin’s price action has eased, but with increased monetary action by the PBOC, we could see further movements to the upside in the very near future.
Interesting to note, more than 70% of global Bitcoin trades are transacted in yuan. This is mainly due to Chinese who want to move money overseas. Although now we could see even more Chinese, not only desiring to move money overseas, rushing to get out of a depreciating yuan.
In any event, just as the mainstream media was only too ready to put another nail in gold’s coffin, and to write off Bitcoin (all cryptocurrencies) for blockchain technology, things have heated up on the currency war front. China’s unprecedented moves to stop the bloodletting will no doubt lay the foundation for other export countries to devalue their currencies to be able to compete in global trade. Expect Japan, South Korea, and the United States to act accordingly. This also could hush any talk of an interest rate rise in the United States this year.
If this is truly the second phase of what Jim Rickards coined the “currency wars,” things could get quite interesting in regards to deflation vs inflation. Moreover, gold and alternatives like Bitcoin would certainly continue to reap the benefits, especially if the Federal Reserve declines to raise interest rates again.