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Bitcoin-Yuan Divergence Reached New Heights

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Bitcoin-yuan divergence reached new heights, once again fueling speculations that Chinese are possibly seeking safety in the world’s largest decentralized cryptocurrency.

Source: iStock/baona

Bitcoin and yuan have been going to different directions for a while now, and their inverse correlation has reached a record last week, indicates Bloomberg analysis of their 30-day correlation.

The inverse correlation between the two assets may be resulting from several reasons, including the Chinese trade war with the United States, the central bank’s monetary policy and the slowing economy. According to Don Guo, CEO of Broctagon, Singapore-based solutions provider for forex and crypto market brokers, bitcoin is used as a way to hedge against traditional market volatility.

“The role of these assets has essentially been reversed. Traders have been expecting a fall in the yuan for a while, in light of international tensions and the central bank monetary easing policy. With the trade war raging on, nervous forex traders have started to look at ways to diversify their portfolio and hedge against any market volatility. And, ironically, this has led them to turn to bitcoin, which has long been considered a notoriously “risky” asset, to hedge against a traditionally safer investment,” he said in an emailed statement to Cryptonews.com.

This is not the first time this year when the inverse correlation between bitcoin and yuan becomes more evident, as it has also happened in April and May, “as the tensions ratcheted up with the deterioration on U.S.-China trade relations,” Dr. Garrick Hileman, director of research at Blockchain.com, told Bloomberg.

“A lot of traditional assets are flashing warning signs so investors are looking elsewhere. Fears of an incoming global recession has led to a flee from the stock market and bond yields aren’t looking too appealing. As digital assets are less dependent on the political climate, they are increasingly being seen as a “safe haven” asset. This goes double for China, where the government has taken positive steps in it’s attitude towards cryptocurrencies, adding weight to its appeal as a hedge. It’s likely this will continue whilst market fears drive other assets on a downward spiral,” added Don Guo.

Recently, China made headlines with its plans to release a state-backed digital token. And while China’s crypto-crackdown officially continues, there are some signs that the country wants to rethink its crypto-related policies.

Meanwhile, bitcoin rallied in the first half of this year, with some analysts predicting the “new parabolic phase” for the world’s largest digital asset.

At pixel time (16:05 UTC), bitcoin trades at c. USD 10,900 and is up by 3% in the past 24 hours and by 13% in the past week.

Read more: Bitcoin As a Safe Haven Case Still Lacks Proof