All To Play For
While many people in crypto, especially those on YouTube, focus on technical analysis to predict market trends, we prefer to zoom out and see the broader context. While charts can be helpful, much stronger headwinds often override them. This is especially true when it comes to the present geopolitical situation.
Of all the lessons learned in 2022 the most valuable one is that although there are several risk factors inherent to the crypto market itself, it’s also vulnerable to more widespread market moves. Also, due to crypto still being in its early stages it often reacts with greater volatility to world events than other markets.
For those familiar with the technology the present market conditions are like trying to hold a balloon underwater. The potential of blockchain technology is hugely undervalued, but it’s being held down by factors beyond its control such as central bank monetary tightening and the war in Ukraine.
The good news is that although inflation is still far off the 2% target that most governments are aiming for, it’s steadily falling and there are indications it may soon get a helping hand. Supply chain disruptions and the risk of war are two significant factors pushing inflation up at present and both of these look set to change.
As we’ve mentioned in previous articles, China has managed to resolve its covid difficulties and its economy is showing signs of recovery. Their manufacturing sector is back to full strength and hungry for work, with many factories in the country operating at around 50% capacity.
Once the demand for production increases China is poised to scale up to its pre-covid highs and the mood in the country is buoyant. In March the government will outline its annual plan for the economy with several stimulus packages aimed at jobs and the housing market.
In addition, there are plans to make Hong Kong a regional hub for crypto development and trading. The plans for Hong Kong are similar to the way in which China allows Macau to have casinos and would enable the government to protect the use of its CBDC whilst also keeping up with blockchain developments. But it’s not just at home that China is making bold moves, it’s also challenging the US on the world stage.
Last week saw the release of China’s plan for peace in Ukraine along with their top diplomat holding talks with Vladimir Putin on the anniversary of the invasion. What makes China’s position unique is that they have so far refused to take sides in the conflict, remaining as neutral as possible.
For instance, during last week’s G20 summit in India, China refused to condemn Russia’s invasion of Ukraine while also stating that its sovereignty must be respected. Despite their approach drawing criticism from the US, President Zelenskyy of Ukraine is arranging to meet Xi Jinping to discuss the Chinese plan.
Whilst it’s highly unlikely that the plan will be accepted by Ukraine it nevertheless starts the countdown for a negotiated end to the war. The reason is that this move is just one part of China’s strategy to challenge the dominance of the US.
They are already targeting countries that have difficult relations with the US and gathering support for their more conciliatory approach. At the same time, they’re negotiating trade deals that are settled in both US Dollars and Chinese Yuan.
Meanwhile, in Europe, there’s growing concern that the Ukraine conflict is at risk of turning into another US/Russia proxy war that could drag on for years like the Afghanistan conflict of the 1980s. Although politicians are showing strong support publicly for Ukraine, behind closed doors they want an end to the crisis to help reduce unsustainable energy costs and inflation.
Many diplomats are expecting the meeting between Ukraine and China to yield nothing in terms of peace, however, it raises the prospect that the US could potentially be sidelined in a dramatic loss of face. If China were to somehow convince Putin to withdraw his troops it would hand both Zelenskyy and Xi Jinping an unprecedented political victory. Although it’s a highly unlikely outcome it puts pressure on the US to find a resolution to the conflict sooner rather than later.
An end to the war would trigger a massive upswing in all markets and significantly reduce inflation. For crypto, the signs are good that 2023 will see the start of a much-needed recovery phase ahead of the 2024 Bitcoin halving.