With the volatility of the Yen / USD currency trade due to the ongoing trade war, the transition to alternative currency options is growing in appeal. With examples of Litecoin having higher hash rates than ever before (https://www.coindesk.com/above-125-litecoin-jumps-to-highest-price-in-over-a-year) along with uncertainties of trade relationships growing, the movement to universal currencies may grow in adoption in reaction to the further strain and changes to international commerce.
- Looking at specifically Bitcoin, Litecoin and Ripple, here are the few areas of focus that can generate a strong shift into cryptocurrency adoption.
Point #1: US Treasury bonds and its impact on currency conversion
With China having 100 trillion $USD in treasury bonds with the US, the speculation on the country pulling this money could result in a surge of currency conversion to the various cryptocurrencies available in their region
With the cumulation of debt growing, the valuation of a country’s currency tends to fall in foreign currency exchange. To combat this issue, leaning on a global currency, (such as Bitcoin and Litecoin) is a strong alternative if there is an uncertainty of your local currency. In this specific instance, the trade arrangement between the United States and China is currently being strained, which leaves the current debt-owing and reliance on China’s exports affecting the value of the currency. This has been shown recently with Bitcoin growing in adoption within China (https://www.forbes.com/sites/jeffkauflin/2019/05/15/fear-drives-chinese-to-buy-bitcoin/#37e5dd295e31). The ongoing negotiations with the free trade agreement will play a strong role in adoption for cryptocurrency.
Point #2: Cryptocurrency Mining
There has been speculation on Bitcoin mining potential being banned in China (currently 70% of the mining), eliminating the supercomputers in China in mining could open the gates for all countries to gain stronger traction in computing (https://www.reuters.com/article/us-china-cryptocurrency/china-wants-to-ban-bitcoin-mining-idUSKCN1RL0C4). This may have adverse effects, however, as the inability to mine may differ, resulting in the largest group of adopters, China, to alter their habits in cryptocurrency. For an overview perspective, the power consumption of Bitcoin mining alone matches the usage of Switzerland in its entirety (https://www.bbc.com/news/technology-48853230). China being the largest concentration of Bitcoin mining, as well as many other cryptocurrencies, the changes will affect the value significantly (such as the hash rate, mining resources, barriers of entry with computing hardware circulating the second-hand market, etc..). Therefore, it is keen to keep a pulse on this specific market, due to the adverse effects in the valuation of cryptocurrencies. Also, it is important to keep in mind that Bitcoin is on track to halve by next May.
Point #3: Alternative Mobile Crypto Payments
Facebook announced its blockchain Libra, which will not be accessible in China and could likely further the competition between the US and China aiming to capture the majority of the mobile payment space. The two major players in China are Alipay and WeChat Pay who make up for more than 90% of China’s mobile payments and 20% of the global population already and have no intention of working with Facebook and expect it to either be heavily regulated or that it will not succeed. Given the number of major companies that are involved in this including all major digital financial service providers and that more than 70 other companies will join before the launch, it is likely that this will become a global effort and with China being the biggest competitor it will likely increase tensions during this trade war.
Point #4: China’s Central Bank Plans To Develop Cryptocurrency
In the previous point, we looked at Libra and how it will affect the trade war, just recently the central bank of China shared in the South China Morning Post that if Libra was going to be “used for payments, cross-border payments in particular,..... Would it have a large influence on monetary policy?” They believe that because Libra is backed by the US dollar, it would have economic, financial, and even international political consequences given the influence the US could leverage with Libra. They have supported this in 483 branches in 28 banks and have processed over 30 billion Yen already. They have been in the testing phase since September last year and now they are really vamping it up to compete. This will likely strain the economic relations between China and the US more than they already are.
Conclusion: What are your thoughts on the trade war -> currency inflections?
With these focus points, along with the numerous factors that can contribute to an up-swing or down-swing in the cryptocurrency markets, it is important to observe the upcoming decisions by the world leaders and major corporations. The adverse effects of uncertainty and economic changes lead to alternative currencies is where cryptocurrency technologies may become a more sustainable choice, but time will tell.
With the US beginning to acquire more control over the blockchain and cryptocurrency space with its ties to Facebook, they continue to strain tensions further with China pushing them to release a blockchain trade finance solution with their central bank and double down on their current efforts. We will likely see more of this leading up to the final launch of Libra. Many investors are still unnamed and depending on who supports the project may have a major influence on how China will respond.
What do you think about all of this and what are some other factors contributing to the trade war and how it’s being affected? Leave your feedback and thoughts in the comments below!
Gary Ryckman (Co-Author)
Scott Cunningham (Co-Author)
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