What a Trump presidency may bring for China’s Bitcoin
Bitcoin’s growth rate will henceforth be somewhat affected by the outcome of two key events — Donald Trump’s inauguration in the U.S. and the PBoC’s release of its report on its investigation into the three key exchanges in China.
Starting from late last year, there have been predictions that a Trump presidency will shoot the price of Bitcoin to as high as $2000. The ideal conditions for the price rise will be created by a spending binge that will propel dollar sky high and force emerging markets to seek alternatives, according to Saxo Bank in its Outrageous Predictions for 2017.
The Danish investment bank projects that Trump, as well as Britain’s Theresa May, “will bring fiscal stimulus, real inflation and higher yields and the European Union will need to do similar to avoid populist uprisings across the continent as we face a bonanza of EU elections” in 2017.
Trump’s pledge to spend billions of dollars on rebuilding America is expected to trigger a demand in the metal market particularly for copper which has been missing increasingly following the Chinese investment boom after the 2009 financial crisis. The spending may increase the circa $20 trillion of US national debt and likely triple the current US budget deficit from about $600 billion to $1.2-1.8trn, or some 6-10% of the US’s current $18.6trn economy.
If and when that happens, the report says a domino effect will be felt in emerging markets and China. The US growth and inflation will increase and the Federal Reserve would be forced to accelerate its hikes sending the dollar higher, a situation that will push people to look for alternative forms of currencies and payment systems that are not tied to central banks. Bitcoin comes in at this point.
Russia and China
As predicted by the Bank that Bitcoin price would rise if the “banking system as well as sovereigns such as Russia and China move to accept Bitcoin as a partial alternative to the USD…”, there are reasons to believe that the two countries in question are already moving in this direction.
Recent reports say that the Russians are not going to stop Bitcoin use while China is making moves to sanitize its trading environment. Ahead of today’s release of a PBoC result of a probe into the top three exchanges in the country, the exchanges have announced the immediate suspension of margin trading service according to the requirements of the regulators and there are suggestions they may likely re-introduce fees and abolish zero-fee trading.
Trump on China
The Trump effect seems to be trouncing the PBoC’s scheduled announcement as at the time of this writing. The news of PBoC releasing its report had dipped the price of Bitcoin on Wednesday January 18 but it has been climbing albeit slowly in the past 24 hours as Trump’s inauguration gets closer. It is not clear if this will continue afterwards.
Market insiders have suggested that Trump’s talk of tariffs and the rise of populist nationalism evident in the Brexit vote are warning signs of a coming storm whose severity cannot be determined yet. Trump has floated the idea of a 45% tariff on Chinese imports to the U.S. and is also planning with the Republican to introduce a 20% border tax on imports while granting rebates to exports to favor domestic production. If effected, the move will make foreign imports to the U.S. be less competitive and prompt a large appreciation in the dollar making its global borrowing conditions more expensive. Pressure would intensify on the yuan to weaken in response and it will spur capital flight from China.
Blocking capital flight
China is bent on blocking capital outflows out of the country. Despite efforts to make capital flight more difficult, a Bloomberg report says cash continues to flow out of China and expectations are growing that the authorities will erect higher barriers. One of the suggested options to block the capital outflows which last year was estimated at $728 billion by Standard Chartered Plc – China’s reserves fell by about $320 billion to $3.011 trillion in 2016 less than the $513 billion decline of 2015 – is to clamp down on Bitcoin which has been cited as one of the means to circumvent capital controls.
Whether this would come harder than what we’d already seen thus far is indeterminate but according to the managing director of Shanghai-based consulting firm Kapronasia, Zennon Kapron, policy makers are likely to require more reporting from Bitcoin exchanges and incorporate their flows into the monitoring of citizens’ annual $50,000 quota to buy foreign exchange.
Trump’s intentions are still unclear. However, while his policies may hurt China’s economy and currency thus pushing more people to Bitcoin, what the Chinese top bank says about Bitcoin trading will have a huge impact on the industry.