The US-China trade war may eventually spread into the US bond market, with China selling-off US Treasuries. And that could send Bitcoin, Ethereum, XRP, and Litecoin to new highs.
As the US-China trade war is shifting from tariffs to technology, Bitcoin is turning into the new gold. The digital currency has gained 132.69% YTD since the beginning of the year. Other major currencies have followed suit.
Bitcoin vs Gold, Stocks, and Bonds YTD Price Change
7d Price Change For Major Cryptocurrencies
Source: Coinmarketcap.com 5/3/19 at 4 a.m.
Meanwhile, gold has been almost flat.
Apparently, investors concerned with the trade war breaking globalization have been seeking shelter in cryptocurrencies.
How long will the rally last? It depends on whether the trade war will spread to the US bond market.
For years, US Treasuries have been the store of value in times of rising global uncertainties fueled by trade wars and other geopolitical events.
That’s why US Treasuries have also been rising along with Bitcoin as the US-China Trade tensions flared up in recent months—see chart.
The US bond market has also been a place to “park” the excess dollars of countries that have trade surpluses with the US (e.g., Saudi Arabia in the 1970s and Japan in the 1990s, and China in the last decade).
In fact, China has parked over one-trillion in US Treasuries, as part of its dollar management policy. But Beijing may begin selling them off if the trade war escalates.
That could be bullish for competing Treasuries, and for Bitcoin. “Bitcoin as a store of value could benefit from US Treasuries sell-off,” says Ruggero Gramatica, founder and CEO of Yewno, innovator of the Knowledge graph that generates actionable knowledge from today’s vast information.
Here’s how it will happen:
“Upon US bonds sell-offs, money would then flow to other Treasury bonds,” explains Gramatica. “The two biggest rivals to U.S. Treasury are German bonds and Japanese government bonds. However, both of those papers have low-yield returns than US bonds.”
Then there’s gold. “Gold is an alternative yet with much less return, liquidity and it has high carrying costs,” continues Gramatica.
And there’s Bitcoin. “Bitcoin, however, can observe a surplus of money flow as an alternative store of value pushing cryptocurrencies prices up. Bitcoin, and consequently other cryptocurrencies, is arguably a superior store of value due to its durability, limited supply, predictable inflation and ease of transfer.”
Still, the likelihood is very low, according to Gramatica, as this move would be self-destructive for China. It will devalue the US dollar against the yuan, making Chinese exports more expensive, and leave China with worse alternatives to store money.
[Ed. note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment. Disclosure: I don’t own any Bitcoin.]