The co-founder of BitMEX, Arthur Hayes, argues that China’s monetary and financial policies could end up favoring Bitcoin.
The issue is actually still debated, given that in China it would technically be forbidden to purchase BTC, but Hayes’s reasoning appears at least logical.
The strange relationship between China and Bitcoin
The Chinese state is fundamentally opposed to Bitcoin.
Bitcoin is indeed a decentralized currency, which the State cannot control in any way. China is an authoritarian state, which poorly tolerates the financial freedom of its citizens.
Over the years, the Chinese state has issued several bans against Bitcoin, but in the end, many Chinese citizens have simply decided not to comply with these bans.
For example, the ban on mining in 2020 is well known, which caused the price of BTC to plummet from $64,000 to $30,000 in just one month.
The consequence was that the Chinese miners stopped operating in the State’s territory for a few months, and now, years later, they are second only to the US ones in terms of overall computing power.
The ban on Bitcoin trading, however, dates back to 2017, and was extended and tightened again in 2020.
Even in that case, the result was only a temporary exit of Chinese capital from the crypto market, while now, years later, there are again many Chinese buying cryptocurrencies, using foreign exchanges.
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In other words, China has already largely lost its battle against Bitcoin, and the fact that in another authoritarian state like Russia, a friend of China, cryptocurrencies have eventually been legitimized, suggests that sooner or later the Asian giant might reconsider. In fact, for some time now in Hong Kong the crypto sector is expanding.
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The idea of Arthur Hayes
Yesterday Arthur Hayes published a post on his personal blog in which he expresses his idea regarding the impact that China’s monetary and financial policies can have on the price of Bitcoin.
In the long post, Hayes first highlights how the price of Bitcoin is influenced by the aggregate supply of money in the markets (the so-called global liquidity).
The hypothesis it reports is that the Chinese stimulus measures already announced would not be sufficient to pull the country’s economy out of the recent crisis.
Furthermore, it hypothesizes that China is ready to inject more liquidity into the markets to “cure its deflationary cancer”.
At this point, he adds that China will end up inflating its banking system and real estate sector once again, and given that the recent Chinese real estate bubble was the largest in history, the amount of credit in yuan that will be created will rival the amount of dollars created by the Fed during the pandemic.
All this, according to Hayes, should make the price of Bitcoin skyrocket.
However, these are not short-term phenomena, but according to the former CEO of BitMEX, they are dynamics that will continue for years, or even for decades.
China: the buying opportunity for Bitcoin
However, Hayes goes even further.
He states unequivocally that it is indeed a great buying opportunity, because he believes that sooner or later the Chinese themselves, full of yuan, will want to spend them to buy BTC.
This great buying opportunity is not, however, an idea shared by many economists, something that Hayes himself admits. Nevertheless, according to him, the very fact that many economists are currently pessimistic about the size and scope of Chinese stimuli would be the real reason for the current buying opportunity.
According to some rumors, China is considering approving the issuance of new debt for a total exceeding 10,000 billion yuan, or about 1,400 billion dollars. The Fed actually created and injected liquidity into the markets for almost 5,000 billion dollars between 2020 and 2021, but Hayes’ hypothesis does not limit itself to considering China’s short-term measures.
At that point, Bitcoin could once again act as a form of protection against excessively expansive monetary policies of the major central banks worldwide, and thus it could end up being strengthened by China’s growing national debt.
Among other things, in August 2015, China suddenly devalued the yuan (by 3%), and the price of Bitcoin simultaneously went from $135 to $600.
The upcoming USA presidential elections
To all this, it should be added that next Tuesday the presidential elections will be held in the USA.
Generally, before the elections, the dollar strengthens, while afterwards it weakens for months.
The price of Bitcoin in the medium/long term tends to be inversely correlated to the Dollar Index, so it is possible that in the coming months it may end up strengthening, should the Dollar Index actually start a long decline.
On the other hand, it is probably exactly this that the crypto markets have in mind these days, given that they have pushed the price of BTC above $70,000 despite there being no clear signs of the start of a bull rally in the short term.
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