Bitcoin Rally Falters as Stocks Drop Ahead of Trump’s China Speech

Bitcoin’s bulls are taking a breather amid jitters in the traditional markets over rising tensions between the U.S. and China. 

The world’s biggest cryptocurrency is trading near $9,400 at press time, having posted an eight-day high of $9,620 on Thursday. Prices have gained 8% so far this week, according to CoinDesk’s Bitcoin Price Index. 

While bitcoin looks to be consolidating on recent gains, major European stock markets are flashing red for the first time this week. Leading the way lower is Germany’s DAX, down 1.5% on the day, followed by France’s CAC, which is reporting a 1% decline. Across the pond, futures tied to Wall Street’s equity index S&P 500 are down 0.5%, as per Investing.com.

Markets look to have become cautious ahead of President Trump’s response to China’s decision to implement a national security law in Hong Kong, putting the jurisdiction’s autonomy in doubt. 

“We’ll be announcing what we’re doing tomorrow (Friday) with respect to China. And we are not happy with China. We are not happy with what’s happened,” Trump told reporters on Thursday. Washington warned earlier this week that it would impose sanctions on China if the law is introduced. 

The expectation is that Trump will announce some symbolic sanctions against individuals and companies. That said, with the presidential elections due in November, a bigger action cannot be ruled out. The resulting geopolitical tensions could bode well for bitcoin as many analysts and investors consider it a safe haven asset. 

“I expect serious anti-Chinese rhetoric in the coming days/weeks/months as Trump tries to use nationalism/protectionism and anger towards China/COVID as a major catalyst for support,” Phillip Gillespie, CEO of B2C2 Japan, told CoinDesk in an email. “I am personally bullish [on bitcoin] due to a combination of excess stimulus from all the major central banks (ample liquidity in the system) and pick-up in geopolitical risks.”

Meanwhile, analysts at Stack, a provider of cryptocurrency trackers and index funds, believe the geopolitical tensions have created a “perfect storm” for the cryptocurrency. 

In fact, they suggested in a weekly report on Thursday that the cryptocurrency’s week-to-date gains are the result of increased haven demand fueled by the U.S.-China tensions and the slide in the yuan. 

“Previously back in 2019, similar fears have driven Chinese investors to move their onshore RMB (China’s yuan) out of the country, where speculators reckon a part of that has trickled into Bitcoin given the increased demand over the same period,” according to the report. “We are observing similar price action currently as Bitcoin has rallied 6.2% since, from $8,700 to $9,250 level, once again breaking out from its 2019-2020 daily trendline.“

It remains to be seen if the geopolitical tensions escalate and lead increased haven flows into bitcoin. The cryptocurrency did rise by over 30% in the first half of January when Iran and the U.S. conducted airstrikes on their respective bases in Iraq, injecting geopolitical uncertainty into the financial markets.

Some might argue that bitcoin failed to perform as a haven asset during the height of the coronavirus crisis in March. While that is true, almost every asset, including classic safe haven asset gold, took a beating back then as investors fled for cash. 

Aside from President Trump’s China speech, bitcoin analysts are also keeping an eye on the May expiry of cash-settled futures and options contracts listed on the Chicago Mercantile Exchange (CME). 

“23k bitcoin equivalent futures and 10k bitcoin options are set to expire this Friday on CME. Approx 50% of open interest for each product,” crypto derivatives research firm Skew tweeted earlier this week.

Price volatility tends to pick up around the time of expiry of futures and options activity due to increased trading activity.

However, CME’s contribution to total futures open interest listed across the globe is only 11%, according to Skew data. Similarly, the Chicago exchange’s contribution to total options open interest is also quite low, so the expiry – due Friday at 15:00 UTC – may not have a major influence on prices. 

Disclosure: The author holds no cryptocurrency at the time of writing.