China and Bitcoin

China and Bitcoin

The idea of permitting the entrance of great finances into the Cryptocurrencies sector have become more and more pronounced lately, whereas important factors related to the present market are being ignored and that perhaps could create an alarm (noise).
Let's take a brief review.
In September 2017, China surprised the whole world by closing all of the Cryptocurrencies-related exchanges in its territory.
Given the large volume of exchanges that suddenly no longer seemed to have life, as usual, the newspapers of the time made a death sentence for Bitcoin and the company. And, as usual, this apparent tragedy only tickled the Cryptocurrency market.
That short stretch of side market was the only start of the Chinese government. An insignificant event in the long history of Bitcoin, which at that time had impressed the most naïve and less prepared investors.
After six (6) months, it was noted that the Chinese had once again retaken of the Cryptocurrency trading, while, more importantly, the deceased exchanges had increased their activities by increasing the world classification according to the number of transactions.
This situation has remained unchanged up to date.
If we look for the best Bitcoin markets in dollars, once again we have the Chinese exchanges in the top position.
The first position in the ranking is Binance, an exchange that was born two months before the great and China futile purge and, being already in Hong Kong, was the first to welcome the traffic that fled China mainland.
Then we have Okex and Huobi, given for dead in 2017 and which resurrected after moving their offices to Hong Kong by opening their way to ZB.Com in Hong Kong and Simex in Singapore.
In comparison, we have Coinbase, the giant American financial exchange that everyone talks about, but in the end does not seem as influential as it is believed.

China weights more than Wall Street?

This makes us understand why the entrance of Wall Street's great assets may not be so important right away.
China-related transactions are so important that any event that agitates the waters of this sector could end up in the newspapers, long before the fickle Wall Street market.
And, in fact, something interesting is on the horizon...
The first great Bitcoin bubble that erupted between 2013 and 2014 was highlighted in the strongly bearish phase of the bubble, a characteristic technical training in which the maximum and minimum tend to approach more and more to generate a reversal of the negative side and the resumption of the long-term upward trend.
Practically, this means the bubble did not end in tragedy, but instead generated a gradual and long-term market.
Now, the same formation was highlighted in the second big bubble, which exploded at the end of 2017, of which we appreciate the final phase till date.
Many analysts thinks that even at this point same like 2014, the next phase after the heavy fall will be a long-term rising market, repeating the same script.
The similarities between the two bubbles, of 2014 and 2017, have already been commented on in many articles of specialized magazines and it is one of the most used topics by those who awaits for the next market rise.
So far, however, this analogy was based primarily on statistical data (i.e., in the technical and cyclical analysis of Bitcoin prices) to which some considerations were added to the possible entry of Wall Street assets, as said earlier.
Nobody so far had identified an objective economic cause that connected the two bubbles.
In 2015 Wall Street was shocked by the sudden devaluation of the Yuan decided by the Central Bank of China. At that time, the Chinese made that sudden devaluation, it is true, but as a simple precautionary measure. In fact, there is, an unwritten agreement between China and the United States, for which the Yuan and dollar must always go "hand-held", so as not to disturb the world with too scandalous monetary imbalances.
If, therefore, the United States decides to reevaluate the dollar against other world currencies, China must in turn reevaluate the Yuan against the Asian currencies.
In 2015, the Chinese were warned about the US program to re-evaluate dollar in the long run, the Central bank was prepared to perform a similar revaluation over Asian currencies, but needed to be sustainable in order to start the Yuan from a lower point to where it was.
For this reason, a sharp devaluation was carried out but in the short term, so that the next revaluation would begin from below so as not to increase too much in the long run.
As a result, from 2015 to 2017, dollar has always been revalued to the Yuan and the Chinese government, in order to avoid a vertical collapse of the Yuan, revalued in a similar way to other Asian currencies.
But the Chinese have other priorities in mind.
In fact, the Chinese do not care about changing the Yuan against the other Asian currencies, but rather the Yuan versus dollar.
For them, the devaluation of the Yuan-dollar implies a loss in purchasing power, even if the Yuan reevaluates against other Asian currencies.
So, faced with the devaluation of the Yuan against the dollar at the end of 2016, the Chinese did nothing but change Yuans with dollars during the same period and even more.
That year, there was much talk of Chinese capital flight from the Yuan and the government's futile measures to stop it.
It was also said that one of the systems used by the Chinese to circumvent government controls was to put their savings in the Cryptocurrency market.
This is the raison why, immediately after the large devaluation of the Yuan in 2015 and during the period of the strong devaluation of the Yuan against the dollar, the great hunger of the Chinese for the Bitcoin generated the long and progressive phase of increase of this currency, culminating in the 2017 bubble.
Now, finally the rise is interrupted and a gradual descent begins, indicating that the Yuan gradually appreciated against the dollar, thanks to the change in the U.S. policy towards its currency.
Now, if, thanks to this rebalancing with the dollar during the 2017, the Chinese no longer have the urgency to preserve their purchasing power, they have not ceased to increase their presence in the Cryptocurrency market (Perhaps because of the lack of confidence in the long-term tenure of the Yuan) forcing the government to shut down all the exchanges in its territory.
Thus, the rise of Bitcoin did not stop, but led to the 2017 bubble (generated by many other triggers, including China's underlying tendency).
Then we come to the present, that is to say, to the terminal phase of the bubble, where at some point, we notice something strange. In fact, it seems that in these last days the red line has risen again.
What happened in China with Bitcoin? It happened that the Central Bank of China suddenly decided a devaluation of the Yuan even stronger than that of 2015.
But unlike 2015, this time the devaluation was not in good faith and in agreement with the Central Bank of the United States in anticipation of a revaluation of the dollar.
This time, devaluation was a harsh response to the trade-war set by Trump against China.
Analysts says that China cannot underestimate the Yuan for a long time without damaging domestic and Asian markets, the fact is that Trump has played the most extreme cards, including his own currency.
China will not be able to carry out a steady and regular devaluation, but will certainly carry out other short-term shocks that would weaken Chinese purchasing power once again.
As aforementioned, this sudden devaluation is placed in the terminal phase of the Bitcoin bubble, as well as the 2015 that included the previous bubble. Hence the situation of the Yuan could provide a concrete economic argument to the pure and simple statistical hypothesis of the similarity between the two Bitcoin bubbles.
In reality, if the post-burst increase in the 2014 bubble was generated by the Chinese attempt to secure its savings in the Cryptocurrency market, an almost identical situation could arise in the coming months, once the trade war between the U.S. and China forces the Central bank to give other monetary shocks in the Yuan and, consequently, pushes the Chinese to increase their exposure to the Cryptocurrencies.
The Chinese (we speak of the Chinese people, not their government) have always had a great influence in Bitcoin and have been supporting this market for more than 5 years.
Therefore, it is worthwhile to control much more what is happening in Asia with Bitcoin, while all traditional media are concentrated in the SEC, ETF, Wall Street, and other developments that are still unimportant today.
We, like many industry analysts, anticipates and look forward to the next upward trend in the Cryptocurrency market. But we are beginning to think that this phenomenon could come from China, as it happened in the past.

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