Currency wars are good and easy to win

It’s official: America and China are in a full-blown currency war. Could this be the best thing that’s ever happened to bitcoin?

Even by the standards of the Trump administration, the most recent trade war escalations with China have been, how shall we say, kinetic. After announcing that he was slapping tariffs on the rest of China’s exports to the US, China responded by allowing their currency to fall below a critical level – seven yuan to one dollar – a level which hasn’t been seen since the GFC. This incensed Trump so much that he declared China a currency manipulator, the economic equivalent of firing a couple of Tomahawk missiles into an adversary’s embassy.

We can quibble all we want over the merits of a trade policy that appears to have been formulated by an irate three-year-old, but, well, Trump is the President, and it’s the consequences of his trade policy that the rest of the world has to deal with. And while share and currency markets the world over were roiled by the news, there were two notable winners from the chaos: gold (up 7% in a week) and bitcoin (18%).

Into the bunker!

Gold is a classic safe haven asset. Even though the gold standard hasn’t been a thing for almost fifty years, every country on Earth still keeps a stash of gold somewhere on the premises, just in case things go real fruity. (China, for instance, has bought 70 tons of the stuff since December.) For investors, buying gold is essentially a bet that things are trending towards instability – when the value of the world’s currencies are in freefall, you can generally rely on gold to move in the other direction.

So, bitcoin is the new gold?

Well, it’s complicated. On the one hand, this is precisely what bitcoin was designed to be: a manipulation-resistant alternative to centralised fiat currencies. When the entire foreign exchange market starts looking shaky, bitcoin can be relied on to obey the same rules it always has – 21 million bitcoin, released on a reliable schedule all the way to 2150. 

On the other hand, bitcoin is still considered a high risk investment. So if the shit really hits the fan, money will likely rush to trusted safe havens: US Treasury bonds and gold. This could lead to a sudden and severe move against bitcoin as the world’s appetite for speculation dries up. But when the dust settles, people will be on the hunt for undervalued assets and bitcoin could become an appealing hedge against governmental uncertainty. 

Whatever happens, it’s hard not to think that we could be approaching a threshold moment for the OG cryptocurrency. But if you believe, as we do, that bitcoin represents a revolutionary event in the history of money, then all you can really do is sit back, HODL and enjoy the fireworks.

One other thing

We tend to think of cryptocurrency as the province of digital native twenty-somethings, but according to new research from Grayscale Investments the people most likely to lead the cryptocurrency revolution are middle-aged, suburban mums and dads looking to diversify their portfolio. While they found that 21 million Americans would consider investing in crypto, it was the over-representation of parents (70%), the average age (45) and the almost equal interest from men and women (57% to 43%) that made us pay attention.

Ask CoinJar!

People keep telling me that bitcoin has no intrinsic value and that I’m a maniac for investing in crypto. Are they right?

When someone wants to ridicule bitcoin, they’ll usually invoke the Dutch tulip mania of 1636, when the price of tulip bulbs went up 20-fold in the space of a few months. Besides the fact that the story is almost entirely wrong, the analogy proceeds on the idea that bitcoin itself has no intrinsic value and will inevitably plummet towards zero. 
Nothing like bitcoin has ever existed before, so the usual metrics for measuring value aren’t particularly helpful; it’s not quite the same as a share, or gold or a dollar. Yet there is something valuable about it: it’s a scarce resource, requires effort to produce and people are willing to pay money for it. How much money is, of course, the question, but as the network processes more and more transactions, becoming more and more useful to the people using it – and getting closer and closer to functioning as an alternative financial system – the idea of intrinsic value could become a self-fulfilling prophecy. In the meantime, to quote George Michael, you just gotta have faith.

Further Reading

All roads lead to bitcoin – Arca Investments

Trump’s currency war could be bitcoin’s do or die moment – Michael J. Casey

$100 trillion – Multicoin Capital