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Bitcoin: “A bet on the future; a shelter for the present"

by , 12 August 2019
Bitcoin: “A bet on the future; a shelter for the present
The quote above is what Jehan Chu, managing partner at blockchain investment and advisory firm Kenetic Capital in Hong Kong, recently said about Bitcoin.

What made him say this?

Well, last week Donald Trump continued his ‘tariff tantrum' by adding 10% tariffs on another $300 billion in Chinese imports, starting 1 September.

China retaliated by asking state buyers to halt American agriculture imports.

Obviously, this spooked global equity markets, commodities and most currencies. Emerging markets took the brunt of this escalation.

And the winners?

Gold has jumped +4%, from $1,414 to over $1,470.

On the other hand, Bitcoin has surged 22% - from around $10,000 to $12,200 as I write this.

       
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Investors are rushing into ‘Digital Gold’ – but why?
 
Tom Maxon, head of US operations at electronic-payment products company CoolBitX Ltd believes that, “A lot of this might have to do with some capital flight out of China”. 
 
And I agree.
 
You see, China’s currency system is different to the one found in other parts of the world. China’s government actively manages the value of its currency, the yuan, relative to other countries. 
 
Why? 
 
Well, it goes back thirty years, to when China first plugged into global markets.
 
China’s strategy for the last thirty years has been to trade as much as possible with the West. To encourage foreign trade, they decided to manage the currency, so that Chinese exporters 
 
a) Would be able to sell stuff cheaply. 
 
b) Wouldn’t have to worry about volatile currencies messing up their plans.
 
Whatever the reasons anyway, China is determined to manage its currency.
 
The way it has done that is to stop people moving money in and out of China. 
 
For instance, the Chinese government maintains strict capital controls, limiting the amount of foreign currency anyone can buy or sell to $50,000 a year. People can apply for an additional quota, but still the amount of currency they can buy and sell will be limited.
 
In other words, ordinary Chinese people can’t just waltz into their bank and easily buy dollars. They are financially locked into their country.
 
Now, put yourself in the position of a fairly rich Chinese person. You have lots of wealth through stocks, property and other investments. But you want to diversify offshore, because of the impact of trade wars or a slowing Chinese economy.
 
What can you do?
 
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You buy bitcoin!
 
Bitcoin isn’t controlled by anyone. The Chinese government (nor any other government) cannot easily keep it out. Anyone can buy some.
 
Once they own it, they can cash it out anywhere in the world in local currency.
 
And Chinese investors are buying Bitcoin and cryptos in droves.
 
On 31 July, CoinDesk described the massive flow of transactions happening between Russian and Chinese merchants,
 
Business is brisk thanks to a constant flow of Chinese merchants who come in daily with heavy bags of cash. The OTC desk sells about $3 million worth of crypto every day. Most of it usually goes to China. 
 
In any case, more and more people are starting to realise that cryptos are becoming safe-havens in times of global uncertainty.
 
As Jehan Chu says, “With the turmoil in markets and the streets, suddenly digital gold doesn’t seem like such a bad idea”.
 
In fact, judging by the latest boom, it seems like a great idea to own some.
 
See you next week.
Joshua Benton,
Managing Editor, The South African Investor 
 
P.S. Despite Bitcoin (and other cryptos) latest surge, there’s still plenty of gains to be made for savvy investors. Everything you need to know to get started investing in cryptos, can be found here.  


Bitcoin: “A bet on the future; a shelter for the present"
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