U.S — China trade war and skyrocket of Bitcoin price
As U.S China trade war begins, all except cryptocurrency market devalues. The index of China A-shares proved my prediction in the article <an article to understand 2019 major events> that bitcoin plunge was temporary. By contrast, U.S stock market could hardly remain increase. Apple market value elaborated 52 billion USD during one night, which decreased 15% from the highest level, and Facebook decreased by more than 17%. Other technology stocks such as “Nvidia” — a star stock– lost over 45% market value from the highest.
Last recession began from 1973–1974 (as shown in Kondratiev wave), which started with technology blue-chip stock tumbling, the same as Internet bubble in 2000. When a good stock suddenly decreases, we should be wary of the potential economic bubble burst.
2019 witnessed turbulences. U.S president Donald Trump claimed trade war against China, while China has taken necessary countermeasures against the U.S economic “penalty”. On the other hand, 5G war just broke out, and the trend is still unclear. Terrorist attacks in Europe and protests occur frequently. China has already set one foot on the new unforeseen era. Taiwan Strait issue is yet unsolved. To better equipped with the difficulties lying ahead, we need more courage and tactics.
Bitcoin price’s boom is a sign for new entries into cryptocurrency market. Understand U.S China trade war will help us predict the trend of digital asset market. Let’s see what key events might happen and how it will affect cryptocurrency market?
Although people worry that China’s agricultural production might fail to meet the demand of massive population. However, the added value of China’s agricultural, forestry and fishery industry in 2018 exceeded 1 trillion USD, which is more than 6 times of U.S. By contrast, added value of China’s real estate industry is half of U.S, but it’s unnecessary to fear the burst of China’s housing market bubble. From my view, in future the 1st and 2nd tier cities’ housing price will be stable, and housing price in 3rd & 4th tier city will decrease.
In addition, many concerns about the result of trade war, while China’s total export to U.S is 470 billion USD, as compared to 5.7 trillion USD domestic sales. Which weighs more is obvious. Therefore, American citizens will finally bear the burden of Trump’s trade war policies, and China’s main exports to the U.S is consumer products, which is inelastic demand people need every day, rather than entertainment or high-tech products.
We have realized that in past 2 decades it was U.S and China that led the economic development. Twenty years ago, George W. Bush the junior talked to China’s president and proposed to establish G2 between the two countries. However, the proposal was declined by China. China worked hard for decades to produce diversified consumer products for the world, while U.S. benefited from the circulation of its currency.
We have witnessed that China’s GDP has reached 1.36 billion USD in a short period, which accounts for 66% of U.S GDP. In past two decades, only China, U.S, India and Korea have achieved stable economic increase.
However, Korea gradually falls behind in term of cell phone, car and television manufacturing. For instance, Huawei has exceeded Samsung in cell phone manufacturing. Korea’s core advantages over China is declining. In recent competition to test 5G, Korea adopted the base station technology developed by Huawei.
The next decade will witness the stable economic development of China, U.S. and India. Today’s India is similar to China’s open up and reform period 40 years ago. However, the continual religious war, high illiteracy and long-term colonization made India a second “UK” only with bigger territory. Its Internet usage just reached 1/3 of the whole population, around 33% of that number in China.
The economic competition in next decade between U.S and China represents the ideological battle between the two leading countries in east and west.
To put in practical terms, it is a question of who will lead human civilization in next stage. According to Chinese President Xi, civilization has no right or wrong, but need to find a way to co-exist for mutual development.
China and U.S differ in every aspect, such as life style, governmentality, company management, individual behaviors and ideology. It is not a zero-sum game. Whatever problem China encounters, will make it more adaptable to evolutions of the environment. What’s more important is, Chinese people have faith in their country. What about the Americans, British and Japanese?
As mentioned previously, the trade war resulted from the ideological difference between China and U.S. Although U.S always played as the world leader, however, as Chinese economy grows, it gradually lost control of China’s economic and political development. Donald Trump realized the emergency to deal with the “rivalry” in order to succeed in 2020 president election.
However, U.S lost the best chance to win. Chinese Vice Premier Liu He went to U.S for the trade talk, with 100% sincerity and open attitude. Domestic announcement of Chinese government is also quite straightforward “China has already given its answer (to the US): if you want to talk, our door is wide open; if you want to fight, we’ll fight you to the end.” Even if Trump has been used to the American way to solve problems, he’ll find out this time is different.
Tracing back to the history, the most recent trade talk between the two countries was WTO negotiation. The most difficult part of the whole negotiation was for both to agree with the last 7 key issues on the agreement. U.S representatives disappeared for several times during the talk. It was found out later that they were hiding in U.S embassy to observe the attitudes of Chinese representatives.
The Chief Negotiator Mr. Long Yongtu was leader of the Chinese negotiation team. From previous experience, he found out the Americans intended to sign the agreement if conditions meet — since they have proofread each word of the agreement, but they played it trickily. Mr. Long immediately called Premier Zhu at midnight for the first time but failed. At 09.30 am the next morning, Premier Zhu returned the called, by asking: Can you be sure the American will sign the agreement? With the confirmed answer, Premier Zhu told him: you must have the agreement signed.
Negotiation continued at 10.00 am. Premier Zhu attended, and posted the question to the U.S representatives directly: if we agree on the first three conditions, will you sign the other four?” U.S representatives were surprised, and immediately called president Clinton to confirm. Within 30 min, U.S Chief negotiator Ambassador Mrs. Charlene Barshefsky announced president’s decision: China has passed the most difficult part of bilateral talks on the accession to the World Trade Organization.
When encountering difficulties, China does not fear, but will try for the best to achieve mutual benefit. It perfectly explains the fact that — a powerful country with benignity will get stronger.
However, the unsolved issue remain the same: U.S expects China to alter the ideology formed through the past thousand years, which is Confucian way of management from the top, while the centralized system has proved its efficiency, and simply to adopt the American way is unfeasible.
However, the timing is good for China. Start the trade war earlier will be better for the U.S, and vice versa. While the American government uses power to force the opponents, Chinese government uses wisdom.
Chinese advocate that the supreme art of war is to subdue the enemy without fighting. An essential tactic to keep peace is by allowing both sides to acknowledge the consequence of the war. Peace loving does not mean intimidation. China has experienced too many cruel killings throughout the history. It truly understands the preciousness of civilization.
Therefore, in the hundreds of years of history, China never initiated unnecessary war, and advocates harmony as the primacy thing. But if war is unavoidable, they will try best to win.
On the other hand, western ideology has brought negative issues on society, such as a huge gap between the rich and the poor. For instance, in the U.S 1% top of the society owns 83% U.S. stock share. Those stay at bottom/the poor have little chance of social mobility with the limited income.
In the meantime, U.S owes 2.3 billion USD foreign debt, and the interests might not be affordable by 2020. At the same time, since 2017, other countries are cutting external debt in USD. As the largest foreign holder of U.S. debt, China’s decreased the total amount of U.S debt to the lowest level in history, around 112 million USD. The number will keep reducing by 2020.
The trade war will be long-term, since it battles the advantages of the two ideologies, which will lead the future civilization of human beings. I tend to believe that the next two decades will be “compete & cooperate”. China, U.S will cooperate with the rest of world to build infrastructure and drive economic advancement with core strengths and “one belt one road” policy.
Skyrocket of Cryptocurrency’s market value
If you have read the recent cryptocurrency articles, you should have understood trade war is the reason why capital flow to cryptocurrency market.
In short term, capital tends to avoid risks. While the original way is to buy gold, today bitcoin becomes the new gold. History will always reoccur. Prior to the global economic recession in 1929, U.S blamed Europe for its economic downturn, and initiated trade war with Europe. The result is known to all — the most influential financial crisis in human history resulted in gold price surge by 60%.
Price of gold was determined by the government in 1929, when 1 ounce of gold increased from 20.67 USD to 35 USD. Individuals were forbidden to trade or deposit gold privately, and bankers found excuses to gain more profits in 1929 financial crisis who have control in Federal Reserve. On 9th March 1933, in name of “save financial crisis and stop the loss of U.S gold to the Europe”, the newly elected U.S president Franklin Roosevelt signed the <Emergency Banking Act>, which was later passed by United States Congress. The Act forbade the hoarding of gold coin, gold bullion, and gold certificates within the continental United States, and confiscated individual rights to own gold products. Banks are to hand over gold to the Federal Reserve. Violators will face 10-year imprisonment and 250,000 penalties.”
Roosevelt explained the Act as an emergency policy to save the U.S economy, however, the act was not abolished until 1974. In April 1933, the U.S Congress passed the act to permit the president to reduce the gold content of dollars by 40–50% compared to 100 years ago in 1837. On 5th June 1933, the Congress abolished the decrees, forbade any payment by gold. In Jan 1934, U.S passed <The United States Gold Reserve Act>, to change the nominal price of gold from $20.67 per troy ounce to $35. Half of Americans’ deposits were deprived by governmental enforcement.
But with bitcoin, things will be different.
To know whether bitcoin price surge resulted from the claim of trade war, we need to dig deeper into trade war. Trade war is a fight between the human and Machine civilization for which one will lead our future. I have mentioned my view in <an article to understand 2019 major events>: the answer lies in the next generation of Machine civilization.
Tracing back to the history, each impactful financial crisis destroyed world economy to some extent, but regenerates opportunities for new development in the meantime. Crisis stimulates technology breakthrough, and it drives industrial revolution to create new pillar industry and the next economic growth point. Those who seize the opportunities in crisis will recover early and lead the next development.
In the mid-18th century, UK was at the centre of world technological revolution. Since the first industrial revolution, UK has developed from a less developed country with 2% of the world population to a giant in less than a century. World financial crisis in 1857 led to the second technological revolution of electricity, petroleum and steel. U.S became the new giant with the wide use of new technologies and equipment. 1929 world financial crisis stimulated the third technological revolution. U.S kept its world leading position through technological breakthrough in electronics, aircraft, and nuclear energy.
Today, the logic behind cryptocurrency price increase reflects the conflict of discourse power among the three parties — eastern and western human civilization represented by China and U.S, and Machine civilization represented by bitcoin.
Each financial crisis created a new era of technological development. The previous 150 years lay the foundation for blockchain, AI and IoT technologies, as a process of quantitative to qualitative change. In short term, the trade war between U.S and China foreshadows the turning point for future, while in the long term, it is a war between human and machine civilization.
On the other hand, the rise of cryptocurrency market is closely related to the drop of China A-shares and U.S stock market. When A-shares and U.S stocks fall, capital will withdraw from it and gradually transfer to cryptocurrency market. I am the first person proposing this idea. Although I believe most people will oppose against it, we can leave for the future to proof itself.
I once asserted that, among BTC, ETH and EOS, we should buy ETH first. The previous surge of ETH has already proved my prediction.
In addition, the essence of A-shares are China’s economic fundamentals + national policies + market emotions. Similarly, technological innovation fundamentals + U.S China policies + market emotions determine cryptocurrency market. In previous week, an important piece of news of cryptocurrency market was neglected among the excessive information.
Although the founder of Ethereum already announced the news to scale 1,000x soon, however, few have fully understood the significance behind it. This can be a huge butterfly effect.
If cryptocurrency can be compared to China A-shares (cryptocurrency is different from stocks, it is just a metaphor), bitcoin can be regarded as SSE Composite Index, Ethereum is Growth Enterprise Index, and EOS is Leshi TV. Leshi’s collapse mainly depends on when its founder Jia Yueting will be listed as a defaulter who fails to fulfill court orders. He could continue to reply on hype and headlines before official confirmation is announced. However, the key is no one knows when that will happen.
Ethereum scales 1,000x means what? It is the same as if Chinese government announced the scale of growth enterprise board will increase from 160 billion in 2009 to 5 trillion in 2019, and it claims the scalability will further expand 1000x in the future, will you be willing to join now?
One of the conditions for crypto market value increase is to upgrade Proof-of-stake (POS), which will generate a huge ecological system by creating new upstream and downstream industries. The market future has already been decided when Vitalik Buterin announced the news.
Many asserts that the bull market has arrived, China’s bitcoin whale Li Xiaolai posted a question on weibo the day before: where do you see the bull market? I didn’t recognize it. Unfortunately, I agree with him. A new market will experience the following stages — initially refused by current market — repetitively prove itself — attract demographic dividend — neglect positive announcements — butterfly effect — market expectation rise — good news increase market value — butterfly effect enlarged — good news keeps stimulating market — market goes crazy, until finally demographic dividend disappears.
Bitcoin market value increased early this year, which attracted large amount of focus at world-scale. However, demographic dividend will not benefit the market immediately. Only limited participants will join at early stage such as big investors, or those having foresight, such as the readers like you. For instance, ETH market value skyrocketed recently, but related key announcement is neglected at the same time.
Motley Crowed effect is the reason why key messages are easy to be ignored. <The Crowd: A Study of the Popular Mind> was a book authored by Gustave Le Bon first published in 1895. The book claimed that an individual immersed for some length of time in a crowd will soon find him/herself influenced either by the surrounding crowd or from some other cause of which we are ignorant, and his previous “independent” thinking will be gradually substituted by the crowd mind. “When isolated, he may be a cultivated individual; in a crowd, he will be emotional with no dissidents as a primitive being”.
A new market needs time to grow and be stabilized. Therefore, market value fluctuate repetitively, until more have realized the value of the key messages to the market price.
As mentioned before, the continuous increase of cryptocurrency is influenced by the technological innovation fundamentals. If the Growth Enterprise Index such as Ethereum fails, market will lose the motivation to restart in large scale. Therefore, in 2019 everyone should focus on the following two issues: first, Bakkt’s official launch closely linked with Bitcoin; second, is the successful upgrade of Ethereum PoS system.
The process will not be completed until the 1st half of 2020. Bitcoin halving will initiate in May 2020. But is it the core logic behind the surge of bitcoin price? We can tell it as a story, however, we should focus on the nature behind events. The China U.S trade war is another main determinant of bitcoin price.
We should focus on three key events in 2020: China’s economic fundamentals, Taiwan Strait issue, and U.S election.
China’s economic fundamentals indicate the length and depth of China’s potential of development, which is the energy to ensure the smooth transformation from the west to east civilization. The key to relieve the U.S China tension will be Taiwan Strait issue, instead of trade war. As I mentioned previously, trade war is just a reflection of ideological difference. In addition, whoever will be elected as the next U.S president, does not change the trend of U.S decline. If you read my previous article <an article to understand 2019 major events>, you’ll see the U.S stock market will plunge by 40%, reaching 16,000.
The battle between ideologies will lead the inflow of demographic dividend to Machine civilization, just as 2018 cryptocurrency market, since investors’ money are tied up in dollars, U.S stocks and real estates. By then, large amount of capital will flow into CNY. As I said before, China is against war, but when there’s no other choice, China will win.
Therefore, at current stage it still lacks enough pre-requisites to witness the surge of cryptocurrencies. However, every economic recession gives rise to a new technological revolution, followed by the booming of new technology and economy, which coincides with the prediction in Kondratiev wave.
We will all witness the most severe recession in the next decade. All countries except China will suffer from it, and China’ s reactions will determine the extent of economic decline. However, China adheres to the philosophy of giving leeway to the competitors.
Since China is expected to be the winner of war, Bridgewater’s founder Ray Dalio is less worried. To him, the next financial crisis will not be as immanent as 2017. The advice to the ancient Chinese emperor “Build high walls, stock up rations, and don’t be too quick to call yourself a king” can be useful in dealing with problem nowadays.
When the market gets used to the new era of civilization, guess what they will focus on?
In 2021 we’ll witness the bull market as it was in 2017, but only will last longer. A key signal of turning point will appear in 2020.
Has anyone discovered the lack of a vital element in previous depiction of A-shares and cryptocurrency market — the science and technology innovation board. Whoever will be the first to reach “consensus” in science and technology innovation board index, will pioneer the next round of cryptocurrency bull market. Such projects must have been established prior to 2019. Ethereum was proposed in late 2013 by Vitalik Buterin, and conducted ICO in 2014, a narrow application form that was later widely accepted by the crowd in late 2015. This created the turning point of its previous market surge.
When bear market touches the bottom, a high-quality project will be known to the market with the “essential opportunities”（天时）. The rule applies to China A-Shares, U.S stock and cryptocurrency market. With technology, market and consensus conditions met, the project will be introduced to the world audience. This is called “essential advantages” (地利). Last but not the least, when application scenario is basic and wide enough to stimulate large Internet traffic inflow to blockchain community, demographic dividend is formed. This is “essential people”（人和）.
When science and technology innovation board index is confirmed, human civilization will officially transfer to Machine civilization, and witness the initiation of next round cryptocurrency bull market.
Look at the title of the article, the core reason behind the U.S China trade war or the cryptocurrency price surge is — A powerful country with benignity gets stronger.