Declining CNY May Boost Bitcoin
In 2019, the cryptocurrency markets were filled with several narratives and one of them was about the Bitcoin market. Some market participants believed that tensions between the United States and China, which led up to a huge trade war prompted upsurge in the prices of cryptocurrencies.
Bitcoin was responding to tweets by the U.S. president regarding relations with China, surging to the upside and downside with geopolitical trends. When the U.S. president announced the application of tariffs to Chinese goods, both BTC/CNY and the USD/CNY surged in tandem.
The same narrative that Bitcoin price is influenced by geopolitical tensions is coming up again as the CNY has started underperforming. As the world was moving towards Q4 of last year, the U.S. and China were trying to mend their relations. However, things have started getting heated between the two nations again due to the issue of Hong Kong protests that happened in 2019.
The United States, which labels Hong Kong as a special economic zone because it is the most democratic Chinese city, has retaliated against China. Other governments worldwide also reacted to China’s attempt to pass the law. Hence, the CNY has sunk, breaking out of resistance as observed on the currency’s chart.
In addition, the CNY is encountering more pressure as the U.S. has started addressing China regarding the way they handled COVID-19. Analysts have said that the pressure on the CNY may enhance the performance of Bitcoin.
According to Chris Burniske of Placeholder Capital on Twitter, continued weakness of the CNY/USD pair could repeat what happened in 2015 and 2016, where Bitcoin strength coincided with Yuan weakness.
If China's $CNY continues to weaken against $USD, then we could have a 2015 and 2016 repeat (pictured below), where $BTC strength coincided with yuan weakness. https://t.co/ISVJAZMX5O pic.twitter.com/VApfxe1SFw
— Chris Burniske (@cburniske) May 22, 2020
There are other macroeconomic factors suggested by analysts to improve Bitcoin’s performance aside from a declining CNY. One of them is the injection of $20 trillion worth of stimulus (based on estimates) into the global economy by central banks worldwide; analysts think that it will bring about inflation in the long run and in turn possibly boost Bitcoin.
Featured image courtesy of iStock. Source: Cryptopress.