U.S. tariffs on China may backfire as the country reduces dollar purchases, while currency instability on both fronts fuels interest in Bitcoin.
China is scrambling to defend its currency amid the impact of historic U.S. tariffs, fueling renewed demand for Bitcoin (B). On Wednesday, April 9, the People’s Bank of China instructed major Chinese banks to reduce their U.S. dollar purchases to support the weakening yuan.
The Chinese domestic market is still reeling from the effects of the 104% U.S. tariffs on all Chinese goods, which went into effect at noon Eastern Time on April 9. In response, the yuan fell to 7.3498 per dollar at the close of the domestic trading session, representing its weakest level since December 2007.
Geopolitical uncertainty has weighed on crypto assets across the board. Bitcoin was down 4.07% on April 9, trading at $76,407. Despite the short-term pressure, several analysts believe the situation could ultimately prove bullish for Bitcoin.
Bitcoin could benefit from weak dollar, yuan
Analysts at a Singapore-based blockchain firm suggested that a weak yuan could trigger a breakout for Bitcoin. Arthur Hayes, co-founder of BitMEX, echoed this sentiment. He stated that a weak yuan would drive Chinese investors to look for safe havens elsewhere, including Bitcoin.
This analysis relies on Bitcoin’s role as a hedge against inflation, which it certainly is for some investors. For instance, during the currency crises in Lebanon and Turkey, many investors sought Bitcoin as a relatively stable asset. That is, at least compared to their own fiat currencies.
Still, other analysts dispute this narrative, suggesting that Bitcoin still behaves more as a risk asset. For instance, Binance’s latest report pointed out that Bitcoin’s correlation with the S&P 500 shot up to 0.47 while its correlation with gold fell to –0.22.
This suggests that despite ongoing geopolitical tension, traders still largely treat Bitcoin as a high-growth, risk-on asset rather than a defensive inflation hedge. However, as economic pain deepens, that perception could begin to shift.
