I often think that bitcoin price action can provide insight into China that may be more relevant than the official data, wrote Peter Tchir in Forbes..
In 2019, for example, ahead of trade talks taking a turn for the worse in May, we saw a rapid rise in bitcoin prices. My thesis is that insiders in China were aware that negotiations were deteriorating and rushed into bitcoin as a hedge. There have been other periods, where bitcoin seemed to be a leading indicator.
Since the middle of February, bitcoin prices have dropped from over 10,300 to below $8,500 as of Sunday.
I am struggling to understand what this might be telling us about China (if anything).
On the one hand it could signal that China has weathered the storm. According to the latest official reports, Hubei province has just over 32,000 confirmed, active cases. That is a significant decline in active cases as more and more people are categorized as recovered. It would be nice to take the decline in bitcoin as evidence that the official data in China is accurate and the world can respond positively to containment. A welcome relief after last week’s 11.5% drop in the S&P 500.
But, I’m worried there is another plausible explanation. That the economy has deteriorated so much under various quarantines and travel restrictions that people are being forced to sell bitcoin to purchase goods and services. China reported composite PMI of 28.9 this weekend, according to Bloomberg. That PMI has consistently been between 52 and 55 for the past 5 years, so a drop to that level is shocking. If economic activity has ground to a halt, it might mean people really are liquidating bitcoin to survive. That is far worse for the global economy and stock markets in the coming weeks, but would validate bitcoin for many.
I’d like to believe the decline in bitcoin is telling us that China is well on its way to recovery, but I’m leaning towards it being a sign of just how difficult conditions are there.
I remain very cautious on global stock markets and fear that a “demand shock” is going to accompany the “supply shock” that is already underway.
Exchanges struggle
Meanwhile, Chinese cryptocurrency exchanges and other blockchain companies are coping with a new reality as the coronavirus outbreak continues to disrupt their daily operations, CoinDesk reported.
While crypto trading, customer service and marketing remain largely intact, the outbreak has taken its toll on technical upgrades, product development, logistics and business travel, according to a dozen executives in China interviewed by CoinDesk.
Following the outbreak, the Chinese government extended its Lunar New Year vacation by one week to February 10. Weeks later, a few major Chinese cities remain locked down, and many companies have asked their employees to work from home – including blockchain businesses.
“We encourage our employees to work remotely after the vacation as there are so many people from every part of China coming back to work,” said Aurora Wong, vice president at ZB Group. “The coronavirus is not a regional epidemic, it has been spread across the country and even to other countries.”
The outbreak “has caused psychological stress on people,” Wong said. “While many cities are not technically in lockdown, it is definitely not encouraged to come out for our own health and the whole society to get the epidemic under control.”
Founded in China in 2013, Switzerland-based ZB Group claims its crypto exchange now serves over 10 million users, with $3 billion in average daily trading volume. It has operations across the world including China, Singapore, South Korea and the US.
According to Wong, the outbreak is likely to slow the exchange’s technical upgrade to a new version. The upgrade could include front-end mobile apps for users as well as the back-end trading engine.
Before the outbreak, “we were very efficient and fast on upgrading our platform because people across different departments such as the engineering team, product development and marketing could meet and work together to carry out plans,” Wong said.
However, the outbreak has had only a limited impact on daily operations of ZB’s trading platform since the firm keeps a schedule to rotate its staff to maintain the exchange, according to Wong.