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As U.S. President Trump imposes a 104% tariff on Chinese imports, Beijing is responding by allowing the yuan to depreciate against the dollar. Analysts suggest that this move could trigger the next wave of a Bitcoin bull market.
On April 8, the yuan's exchange rate against the dollar fell to its lowest level in 2023, indicating that the Chinese central bank is prepared to let its currency fluctuate more freely.
April 8 USD to CNY exchange rate. Source: Bloomberg
As the trade war escalates, "market expectations for a final depreciation of the yuan have surged sharply, and this pressure will not easily dissipate," said Wu Ju, head of foreign exchange for BNP Paribas Greater China, to Reuters.
According to BitMEX founder Arthur Hayes, the depreciation of the yuan could drive the narrative of capital outflow from China, which may flow into hard assets including Bitcoin.
Bybit co-founder and CEO Ben Zhou agrees, believing that China will allow the yuan to depreciate in response to the trade war. This means "a significant amount of Chinese capital will flow into Bitcoin, which is good news for Bitcoin."
Source: Ben Zhou
Bybit is the second-largest cryptocurrency exchange in the world by trading volume and is a popular platform for derivatives traders. Last December, the exchange stated that users from mainland China can now trade freely on the platform without using a VPN, but trading in yuan is not allowed.
As the U.S.-China trade war intensifies, currency volatility will persist in the long term.
Currency volatility is part of the escalating trade war, as the two major economies are currently in confrontation.
According to Brent Donnelly, president of Spectra FX Solutions, in addition to the fluctuations between the yuan and the dollar, investors are also preparing for "crazy" forex volatility related to the trade war.
Since President Trump took office, the dollar has been on a steady decline, with the dollar index (DXY) falling from nearly 110 to its current level below 103.
According to Julien Bittel, head of macro research at Global Macro Investor, the decline between late February and early March was one of the most severe movements in the past decade.
The DXY index tracks the performance of the dollar against a basket of six currencies, with the euro and yen having the largest weights.
The dollar has depreciated significantly in recent months as measured by the DXY. Source: MarketWatch
Historically, Bitcoin's price has shown a strong inverse relationship with the dollar; when the dollar weakens, Bitcoin's price typically rises, and vice versa.
Related: Bitcoin weekly RSI drops to bull market low, traders believe Bitcoin will bottom at $70,000.
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