Could a trade war between the US and China cause bitcoin values to skyrocket? According to Forbes writer Clem Chambers, the answer is an almost certain yes. Perhaps it has already happened. But what information or possibilities is Chambers basing this prediction on, and is there any truth to it?
The Trouble With Trade Wars
Today, a very large portion of international trade, whether it involves the United States or not, is completed through the transmission of US dollars. These transmissions are typically completed through a financial system known as Swift. Access to the Swift system is strictly controlled by the United States. This means that, as one author put it, Swift is the military branch of the US Treasury Department.
While we are still in the early days of a potential trade war, it’s easy to imagine that if things are pushed to the extreme, countries that stand against the US like China could potentially lose their access to the Swift banking system. This would severely restrict not only their ability to use US dollars, but also their ability to buy and sell goods on the open market with other countries.
Planned Devaluation
Chambers postulates that on July 17 of this year, bitcoin “went nuts” and it’s all thanks to insider trading in China.
Chambers wrote:
Very rich and powerful people, in the know, dumped their yuan for bitcoin as bitcoin may as well be dollars and can become dollars quickly.
One thing that’s important to understand about the Chinese fiat currency, the yuan, is that its value is determined by the state and not by the open market. In the last few years, the People’s Bank of China has intentionally lowered or raised the value of the yuan against the dollar. The reason why they are able to do this is because the yuan is a highly restricted currency and its foreign exchange is typically restricted to state-owned banks only.
And so while you can get your hands on some yuan from a private exchange or dealer, when it comes from the source, it does so at a rate set by the government.
Chambers’ point is that on July 17, a number of wealthy individuals who knew the devaluation was coming decided to use their yuan to purchase bitcoin. This sudden and collective purchase may be what caused bitcoin to take off last week.
Better than Gold?
So how can bitcoin become “better than gold” because of a trade war?
One thing that the Chinese Communist Party has been accused of is artificially keeping the value of their currency low. This is done so that trade with China always appears to be attractive. If the value of the yuan were to increase, then interest from foreign countries in Chinese-made goods would drop because the amount of their local currency or dollars needed to purchase the same items or services would increase.
It’s entirely possible that the Communist Party is lowering the value so as to increase the attractiveness of doing business with China, and perhaps to make up for the difference lost due to the new taxes imposed by the Trump administration.
Now let’s consider gold. If these wealthy insiders did not have access to bitcoin and instead needed to use gold to protect their holdings from devaluation, it’s unlikely that they would be able to purchase more than a couple of pounds or kilograms worth. If you are trying to move multiple millions of dollars into a non-fiat asset in a highly restrictive country like China, gold would likely be your last choice. Not only is it difficult to purchase, and it’s risky to hold onto as it is vulnerable to physical theft, but it is also difficult to move across borders, and it’s buying and selling in large volume can raise unwanted attention.
China Drives the Price
While it’s difficult to confirm most things when it comes to bitcoin prices, there is undoubtedly a correlation between the recent devaluation of the UN and the sudden pump and retained price highs that bitcoin has seen in the last week or so.
And so, perhaps if a trade war does develop, more wealthy Chinese will move some of their holdings into bitcoin as a way to protect their wealth from intentional evaluations by the government. This in turn could increase the demand for bitcoin, and consequently drive up prices.
