With tensions rising between the American eagle and the Chinese dragon, geopolitical unrest could move the needle for Bitcoin . It's like we were here before, isn't it? The centuries-old claim for uncorrelated cryptocurrency affected by diplomatic tensions is a tale that has been played in the past, and now with the respective eastern and western superpowers locking the horns again, Bitcoin could be caught in the crossfire.
Even before the pandemic started, the Trump administration was a vocal critic of China. While Covid-19 began to destroy the US and global economy, most major countries have begun to rethink their diplomatic relations with China and to consider a global supply chain less dependent on Beijing. Going even further, the United States should impose a series of sanctions against Chinese officials and companies. In addition, the anti-China tensions that develop in Hong Kong have also fueled the fire.
This diplomatic war between the United States and China could revive the geopolitical radar of Bitcoin , as it did last year. In an email Lennard Neo , research manager at Stack Funds, exposed geopolitical tensions and said, as in 2019, that Bitcoin could see an influx,
“Speculators estimate that part of this capital was sold in Bitcoin , given the increased demand for digital assets during the same period.”
Last year, when the U.S.-China trade war intensified in the respective country's monetary policies, Bitcoin saw a movement. In August 2019, the Federal Reserve lowered interest rates for the first time since 2008, shocking the market, but leaving the cryptocurrency unchanged. A few days later, the People's Bank of China [PBoC] announced a cut in the daily benchmark rate for the Chinese yuan [RMB], which has been described by many in the United States as "currency manipulation," in response to the Fed decision. As China devalued the RMB, Bitcoin went from $ 11,000 to $ 12,000, an increase of 5.72% in three hours.
Months later, a similar push-and-pull effect was observed. With speculation on a digital currency from the Chinese central bank [CBDC], a Beijing- Bitcoin movement was on the cards. On October 25, when there were unconfirmed rumors that China was optimistic about blockchain technology [not on Bitcoin], the price of the cryptocurrency jumped 30% in 3 days. Later, as the "Blockchain not Bitcoin " narrative was expanded, accompanied by unverified reports that the Chinese office of Binance was closed by authorities, the price dropped 25% in the next two weeks.
While the narrative of a more “act east” policy is being displayed by the price of Bitcoin , there could be a change this year. As tensions between Washington DC and Beijing escalate again, Bitcoin is in a more precarious position this time.
After the halving of May, Bitcoin mining became less profitable. With the price still perched below $ 9,000 as mining rewards drop to 6.25 BTC per block, a lack of price movement could be detrimental to miners, especially those in China.
As the Chinese monsoon fades later this year and cheap hydro is no longer available, there could be movement across the Pacific. The 65% hashrate currently controlled by China could move to the United States and Canada.
Ethan Vera, Luxor Mining Pool operator, said, "Chinese miners are generally more in debt than North American [miners]." This "leverage" problem only intensified in March, when Bitcoin fell below $ 4,000 in one fell swoop. Once this mining leverage in China reaches its maximum, probably as a result of the decline in hydropower economies with the dissipation of the monsoon showers, ready North American miners could take over.
As miners leave China for the United States. Bitcoin's price tug will take a more western approach. The geopolitical foundation of cryptocurrency will change dramatically, and with the price just below $ 10,000, a major move is likely.