Analysts may have come up with a dozen fundamental drivers that have continued to propel Bitcoin forward from February onward, although June is shaping up to be a period of consolidation and reflection. There has been one other factor that has been mentioned occasionally, but no one has ever done the research to back up the claim. Now it appears that Alex Kruger, an economist and trader, has completed his research and is able to say confidently that Chinese investors have been pumping Bitcoin, of late.
China currently has a ban on all things crypto, but as we reported back in February when everyone was expecting a drop in Bitcoin volumes due to Chinese New Year travel and celebrations: “Any trader worth his salt has access to a virtual private network (VPN), which gives them a direct path to foreign exchanges.” Analysts searched for evidence during the period from January 28 through February 19, the time when families would be traveling and away from their computers, but only found mild anomalies here and there, hardly a major shortfall in volume as many had speculated.
The same research exercise began in earnest once more when Trump the “Tariff Man” began to stir up trade tensions once again between the U.S. and China. The threat of a trade war rocked equity markets and also had an impact on the Yuan (sometimes referred to in the press by its official name as Renminbi), which quickly weakened versus the U.S. Dollar. Analysts expected an outflow of capital from Chinese investors to safe havens, which have typically been the Japanese Yen and the USD. Precious metals also fall into that category, as does the new digital asset equivalent of Gold – Bitcoin.
In mid-May, Garrick Hileman, a Macroeconomics Researcher at London School of Economics (LSE) and Head of Research at Blockchain.com, noted: “We are observing a strong inverse correlation between the [Renminbi] RMB’s value and bitcoin, meaning that recent RMB declines over trade tensions have been closely matched by increases in the value of bitcoin. This is not the first time we’ve seen significant increases in the value of bitcoin taking place alongside yuan concerns. Trade tensions and declines in the RMB’s exchange rate as correlation does not necessarily equal causation.”
Kruger’s approach and research hinged on his intuitive notion that search engine traffic should correlate to a degree with Bitcoin price breakouts. He explained in a series of Tweets that he had scoured China’s version of Google – Baidu – and come away the with following observations: “China’s bitcoin popularity has definitively been on the rise. Interest in bitcoin spiked either after price breakouts or during breakouts. Both interest in bitcoin in China (as measured by Baidu Trends) and in the World (as measured by Google Trends) increased similarly and on the same dates.”
William Pesek, a contributing author and Asian markets analyst with Forbes, also wrote contemporaneously on the seeming relationship between BTC price movements and the Yuan: “There’s an easily trackable correlation between bitcoin and the dollar/yuan exchange rate…No, bitcoin doesn’t track the dollar’s zigs and zags–except when we’re talking about its moves versus China’s currency. A sliding yuan tends to be bitcoin positive. As the yuan weakens, after all, moneyed mainlanders are increasingly desperate to spirit their wealth beyond the prying eyes of Beijing’s tax collectors.”
Worth taking note of, as well, was the fact that Mr. Kruger had also discovered a “bearish divergence” that began after mid-May. Both Google and Baidu searches related to buying Bitcoin diminished. As June commenced, Baidu search interest returned, but Google Trend searches remain in decline. We could speculate on how these trends might impact Bitcoin price behavior, but do remember that correlation and causation do not necessarily go hand in hand.