Do The Bitcoin Price And The Trade War Correlate?
By Sebastian Geißler on ALTCOIN MAGAZINE
Is the trade war annoying for anyone except maybe Donald Trump? Yes. Does the Bitcoin price react to the trade war? Yes. The stock markets around the globe react to the trade war is nothing new. That the Bitcoin price is involved too, probably neither. However, there is a high correlation between Bitcoin price and announcements from both parties, China and the US, is something worth mentioning.
Shifting Resources
If you take a closer look at past decisions about imposing tariffs or to put the trade war on hold, the Bitcoin price changed according to the latest news. If for example, the US revealed new tariffs against steel imports, the Bitcoin price increased. When China and the US arranged to put the trade war on hold, Bitcoin lost value against USD. What can be observed is that the Shanghai Composite index rose at the same time. The assumption is that resources shift from traditional markets into the Bitcoin market.
Why? The reason lies in the nature of Bitcoin. The first cryptocurrency around the block opens the world to many other cryptocurrencies and as traders want to switch to digital coins, many use BTC to access the crypto market. Bitcoin is decentral. It belongs to no state and is therefore not influenced by intervention or reacts independently from economic recessions of a single country. Thus, Bitcoin can be considered a suitable alternative. Not to forget about the anonymity which makes Bitcoin especially attractive for citizens living in countries suffering under surveillance.
Observing the Chinese market, all these actions described above apply very well. Stock markets are plummeting since the beginning of the trade war. Particularly after either representative of the United States or China made new announcements. At the same time, the Bitcoin price changed according to the announcement as you can see on the graphs below.
What has to be mentioned is that not every action during the trade war affected the Bitcoin price. When the US banned Huawei, the BTC price went down, against our assumption. This has probably something to do with the huge impact of this decision. Not even Bitcoin is spared when the biggest smartphone producer in China gets banned from Android. Nevertheless, there is a correlation between the Bitcoin price and the trade war between China and the US. This price change happened too often to be left out of consideration. Notably, bigger effects on the markets were mostly due to announcements rather than the dates of impositions or decisions. If you go back in time, this correlation was even bigger which has probably something to do with the fact that people might slowly get used to the trade war and do not react so in panic as in the beginning.
What We Can Learn From That
Many Chinese investors use Bitcoin as an alternative asset to hedge from the trade war. The Chinese stock markets are under special pressure since the trade war and the Crypto world is taking advantage of that. The characteristics of the Bitcoin technology play a significant role which results in an increase in the value of Bitcoin. However, that change has only been temporary many times in the past which means that the growth must not be beneficial for entering a Bitcoin position long term after an announcement. What can be observed is that risk aversion plays an important role in those relations. Chinese equities are in a downturn since the trade war whereas the impact on US equities was quite low and only temporary. That is why Chinese investors might switch to US equities to avoid the high-risk-taking place in their home country. XP Invest offers a perfectly customized product for people who want to trade Bitcoin and safe traditional markets at the same time. The fact that you have access to totally new trading pairs such as NDX/BTC makes XP Invest an interesting platform and convinced many people set up an account. Become a part of it, too.
To sum up, understanding these mechanisms should help analyzing the future price increases or drops of Bitcoin and therefore take advantage of the trade war whereas many traders suffer from those political decisions. Will the correlation of Bitcoin price and the trade war actions increase? Who knows. Does this knowledge improve trading more accurately according to the current political situation? Of course.
Disclaimer
This material should not be the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions, and is not related to the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services, nor is a recommendation being provided to buy, sell or purchase any good or product. Any views expressed are my personal views. The information and data herein have been obtained from sources I believe to be reliable. Such information has not been verified and I make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or estimates herein reflect the judgment of the author of the report at the date of this communication and are subject to change at any time without notice. The author will not be liable whatsoever for any direct or consequential loss arising from the use of this publication/communication or its contents.
Sources:
https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/
https://www.tradingview.com/symbols/BTCUSD/?exchange=BITSTAMP
https://de.tradingview.com/symbols/TVC-SHCOMP/
https://www.bitcoin.com/info/the-benefits-of-bitcoin
https://medium.com/@admin_36352/is-bitcoin-a-safe-haven-in-an-economic-crisis-fab0a340a43e
