Arthur Hayes, BitMEX founder, made a string of comments on X, pointing out the escalating trade war between China and America, arguing that there was a high likelihood of a Chinese Yuan (CNY) devaluation, and therefore a positive sign for the Bitcoin market. Hayes argued that a devalued CNY would result in Chinese capital flight and further flight into Bitcoin. He cautioned traders not to ignore China when making Bitcoin trades. He pointed out that similar price movements occurred in 2013 and 2015. “The U.S. is now pursuing”, wrote Markus Thielen, founder of 10x Research, “full-scale economic pressure on China, which may be forced to respond with quantitative easing and a currency devaluation. If so– and if China permits capital flight– Bitcoin could surge, much like it did in 2015”. Hayes believes that mounting pressure on China, including a trade war, tariffs, and economic stress, leads to economic weakness. He has been preparing for the inflow of capital by “nibbling” a little bit at a time, buying Bitcoin predominately, while holding out for the short term on altcoins, believing that Bitcoin dominance could hit 70%. He claims that ‘money printing’ is a popular method the Chinese central bank uses and feels confident that an injection of money will boost Bitcoin’s price dramatically. The People’s Bank of China (PBOC) has set the daily CNY at 7.2038, the weakest since September. The 7.2 level has been seen as a hard resistance level. A move above this level could indicate a systematic depreciation of the CNY. There have only been a few times that the level has been breached since 2022. Unlike the U.S. dollar, the CNY is not free floating and is restricted to trade 2% on either side of the announced level. A depreciated CNY would create cheaper Chinese experts, offsetting the negative effects of the American tariffs. Xu Tianchen, an economist, argued that an extra tariff against Chinese goods would not make much of a difference because the tariff rate is already at 60%, meaning that trade is already diminished, and further reductions would be akin to reducing trade when there was no trade to begin with. Chinese state institutions have been doing everything possible to stabilise the local economy, preparing for an unpredictable trade war from an unpredictable president, injecting liquidity into the markets, and buying up shares to withstand the negative effects of increased tariffs. Capital flight may occur if there are increased risks to China’s recovery efforts regarding the economy, and this is especially relevant to export markets because China engages in trade across the globe. Hayes, the founder of the BitMEX crypto exchange, interprets recent events not through the lens of an economist but rather as a trader. China and America have disagreed on policy decisions, with tit-for-tat exchanges between the two countries escalating into what now looks like a fully fledged trade war. For Hayes, a weakened CNY would be the logical choice for China because it represents an aggressive response with minimal consequences. The CNY has been trending downwards against the U.S. dollar, reaching five-year lows. Hayes believes Monetary policy is China’s greatest weapon against U.S. trade wars. Historically, Bitcoin has often increased in price when the CNY was weakened. Ben Zhou, co-founder of Bybit, agrees with Hayes that a weakened CNY would be a good sign for the Bitcoin price, citing historical records that confirm this trend. Zhou concludes that China will most likely devalue their currency to offset the negative effects of American tariffs. In 2015, China devalued its currency by 2%. Bitcoin, as a result, had large price movements on the upside. At first, Bitcoin dropped 20%, but then soared 60% upwards over the next four months. A ratio between CNY and USD could be used to measure the potential impact on Bitcoin. 2019, for instance, the ratio hit 7 to 1, and large movements occurred for Bitcoin. Therefore, a trade war between China and America could catapult Bitcoin, including other digital assets, into unexplored territory.
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