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July 28, 2020 1:10 pm
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At around precisely 6AM Shanghai time, bitcoin jumped both on Sunday and on Monday, suggesting China might have something to do with bitcoin now stealing a bit ethereum’s show.
Ethereum was rising by double digits on a defi and staking wave, while bitcoin wasn’t moving much.
Now bitcoin is up 6% today, while ethereum is down 3%, raising the question of what might be going on in China with quite a few potential answers.
An editorial for Caixin argues that “Chinese financial institutions and regulators should fully assess the potential risk of being cut off from SWIFT.”
There have been speculation regarding potential sanctions on Chinese banks with an Arabian paper reporting:
“Khamenei’s first request was to have Iraq’s electricity dues to Iran settled in US dollars, desperately needed by Iran, through Chinese banks. Kadhimi, however, insisted on paying in Iraqi or Iranian currencies to avoid clashing with the US sanctions.”
Kadhimi is the Iraqi Prime Minister while Khamenei is of course the Iranian Supreme Ruler with it unclear how biased this paper might be but last year US authorities charged Turkish Halkbank with “participation in a multibillion-dollar scheme to evade U.S. sanctions on Iran.”
Iran and China have recently agreed a $400 billion deal with it not yet finalized, making sanctions on Iran potentially irrelevant if they can be bypassed through China although in this case the Iraqi Prime Minister refused.
The perception of Turkey is now significantly changing so any sanctions might not be significant, but any sanctions on Chinese banks might be contagious as the Chinese banking system appears to be very weak currently.
Some 300 billion CNY ($42 billion) has apparently been set aside to bailout small and mid-sized banks with money raised from the sale of special-purpose bonds (SPBs).
Fitch Ratings also says they “estimate that inefficient credit could have been as high as 15%-22% of total credit at end-2019, and this could result in a potential system-wide capital gap of between CNY9.5 trillion and CNY19.5 trillion, or 10%-20% of GDP.” So about $2 trillion of potential bad loans.
In addition they have been testing regional capital limits on withdrawals of up to $14,000 leading to some small bank runs.
Their economy however grew in the second quarter by 3% after falling 7% in the first quarter, so they appear to be hit far far less by the pandemic that came from Wuhan with UK’s GDP for example contracting 25% in the first half of the year.
Why they were hit so little when it all started there, is not too clear, but western companies are now being pressured to get out of the country, with India for example banning many Chinese apps.
That may have led many Chinese people, especially the more informed and wealthier ones, to diversify from the banking system and from CNY which might be devalued.
In the west too the euro and the dollar is effectively being devalued, leading to an all time high price for gold and a rising price for bitcoin.
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