China's national currency has fallen below a critical level. Many attribute this to trade wars and political tensions between China and the United States. The accelerating decline of the Chinese yuan is causing concern not only in traditional financial sectors, but also in the cryptocurrency market.
This week, the yuan fell below $6.93, approaching its January 2017 low due to a number of negative economic factors and the uncertain monetary policy of the People's Bank of China.
Analysis of price fluctuations of cryptocurrency and fiat currencies shows that there is a soft inverse correlation between their price levels. Economic crises, increased centralized financial controls, and devaluations of national currencies tend to increase local cryptocurrency volume—and even value—in troubled regions. The collapse of the Iranian rial and Turkish lira significantly increased trading volumes on local cryptocurrency exchanges, but this was not enough to spur the growth of digital assets in the global market. However, such growth cannot be seen in China due to the country's strict anti-cryptocurrency policies.
Before the People's Bank ban took effect, China accounted for about 90 percent of total Bitcoin trading volume. However, with all local cryptocurrency exchanges now either closed or operating outside the Middle Kingdom, the connection between Bitcoin and the yuan has weakened significantly.
According to LocalBitcoins, the minimum interest rate for this trading pair is about 6,643 (46,000 CNY), which is $20 above the world rate. Likewise, the minimum rate is $30 less than the international Bitcoin rate.
Bitcoin trading volume also does not show any meaningful reaction to the RMB depreciation. This clearly demonstrates that investors are in no hurry to invest in cryptocurrency as an alternative to the devaluing national currency. Moreover, only large investors pouring finance into the crypto sector will be able to significantly influence the price of Bitcoin, which cannot be the case when cryptocurrency trading is banned in China.
In a broader perspective, the insignificant correlation between fiat and crypto confirms that these assets have different fundamental factors. While traditional money values are more susceptible to global politics, inflation, interest rates, debt and many other factors, cryptocurrencies, being a new asset class, react differently.. The reaction of prices in the cryptocurrency market is mainly due to the delay of regulators in registering Bitcoin ETFs, public acceptance, lack of constant use as a means of payment, and the influx of large investments.
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