China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
— Donald J. Trump (@realDonaldTrump) August 5, 2019
President Donald Trump has proven the power of Twitter. A single tweet from the president on Aug. 1 is causing a seismic wave to crash through the global economy. In the tweet, Trump announced that another $300 billion of Chinese goods would fall under 10% tariffs, aside from $250 billion of goods already under a 25% tariff.
…during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%…
— Donald J. Trump (@realDonaldTrump) August 1, 2019
This means that all Chinese imports to the United States are now under heavy tariffs, intensifying the trade war to its most fervent level to date. This appears to be the straw that broke the camel’s back for the stock market, with the Dow Jones Industrial Average (DJIA) falling 1500 points since the Trump tweet.
This drop in stock values is mirrored worldwide and is also being exacerbated by China cutting off all agricultural imports from the United States. Further, China is purposely devaluing the Chinese Yuan (CNY), which has long been a tactic to increase its profits from exports. Chinese officials have indicated that they are willing to keep escalating the trade war and are extremely angry with the United States.
While stocks worldwide are melting down, safe-haven assets like gold and Bitcoin (BTC) are rallying. Gold is now approaching $1,500 an ounce, while Bitcoin (BTC) has surged from $10,000 to $12,000 since the Trump tweet. Further, bond rates are crashing as investors rush into long-term bonds.
We’ve seen the correlation between the Bitcoin (BTC) market and major events in the stock market several times this year. Essentially, institutional investors choose to move their money into Bitcoin (BTC) and make profits rather than losing it in the stock market. It works the other way around too. If the stock market is stable and healthy, institutional investors move their money from Bitcoin (BTC) back into stocks, and Bitcoin (BTC) declines.
As discussed in a previous CryptoIQ article, the escalating trade war with China may apply long-term upward pressure to the Bitcoin (BTC) market, especially if the trade war turns into an actual war. It will be important to monitor the trade war situation in China, since every significant piece of news regarding the trade war has the potential to cause major movements in the stock and Bitcoin (BTC) markets.