Bitcoin Yuan Divergence: The ongoing trade war between the U.S. and China has sent ripples down the throat of the global economy since it started back in 2018, as Tariffs on billions of dollars worth of goods are being imposed from both ends. Small enterprises in both countries are getting hit as costs of buying crucial raw materials rise higher. Each country is trying its best to leverage the best out of the situation with China even getting blamed for manipulating its currency. As a currency devalues and the cost of exported goods decrease, the increased external tariffs tend to balance out, thus keeping the cost of goods being sold in the international market relatively low. This is done so that the competitiveness of a product does not get lost and the country does not lose its market. This indicates that as the Chinese currency falls down against the U.S. dollar, people are hedging it against bitcoin. Since bitcoin is an accepted virtual asset as per a court ruling that happened back in July in China, the rush of people towards bitcoin during the time of a falling currency in the country is quite natural at the moment.
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This behaviour of people can be attributed to the trade-war intensification that is happening between the U.S. and China and has resulted in the Bitcoin Yuan Divergence. The main purpose of devaluing the Chinese Yuan by its government is to maintain its market abroad as international tensions rise. But as the value of a currency falls, people also start looking for alternative store-of-value assets to safeguard what they already have in monetary terms. In the past few months, gold was also seen spiking in its price because it is a traditionally trusted store-of-value asset. Although bitcoin is relatively new in the financial space as compared to gold, its growth in the past 10 years cannot be undermined at all.
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