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Coronavirus and the end of the US Dollar

By Marius-Cristian Frunza
Weekly Briefs

Chinese entities owned as of 2019 over 1.10 trillion USD of US debt, accounting for  26 % of the US debt held by foreign countries and representing more than 5% of the total US outstanding debt. Moreover, the trade deficit with China is 419 billion USD, accounting for 47% of the overall US deficit in goods.

Thus, China is not only America's most prominent banker but also the leading supplier of goods. Therefore, a severe crisis that would hit the Chinese economy would hurt ineluctably US growth, but also the position of the US dollar. If the Coronavirus outbreak represents only a fraction of the 1918 Spanish influenza pandemic,  the consequences upon the US economy and US currency would be very disruptive. What does this mean for the Bitcoin community, which looks with trustless eyes to the leading global fiat currency?  It can be everything but harmful, and as proof, the markets delivered a positive signal over the past week.

Market overview

Bitcoin’s price bolstered last week and passed above the psychological level of 9,000 USD. Thus, Bitcoin consolidates its advance in positive territory amid fears of a Coronavirus (2019-nCoV) pandemic. The favourable conjuncture builds on the following drivers:

  1. Bitcoin starts to be perceived as a "safe-haven asset." Therefore, all events with a potential negative impact on the global economy like the Coronovirus epidemic in China, bring a positive momentum to Bitcoin's price
  2. The Bitcoin forward curve exhibits a strong contango with a premium that has a positive trend. It presents with an excellent opportunity for "cash and carry" arbitrage strategies, driving up the spot Bitcoin prices
  3. Lastly, institutional investors are becoming more present in the crypto-currencies market, thereby supporting the bullish sentiment

Coin of the Week

Zcash

Zcash (ZEC) claimed last week above 66 USD, representing an increase of more than 75% over the past 3 months. The currency that saw the light in October 2016 has a fixed supplied of 21 million coins and proposes both transparent and “shielded” transactions, the latter guarantying privacy.  The shielding activity of Zcash accounted for 13.2% of transactions of total transactions over the first months of the year and the trend is positive.

The ZEC community voted last week to allocate  20% of the mining rewards to infrastructure and marketing through a new development fund. Currently, Zcash pays out 80% of its mining rewards to miners and 15% to its founders.
The fact that Zcash overperformed most of its peers underlines that investors put a premium in its privacy features and believe in a rapid expansion in the foreseeable future.

Meanwhile in the crypto-world…

Silk Road

Silk Road, the “darknet” marketplace allowing users to purchase illicit drugs using bitcoin was shut down by the US authorities. After his indictment and extradition from Thailand, Roger Thomas Clark SilkRoad's cofounder pleaded guilty for drug traffic conspiracy. The other founder, Ross Ulbricht serves a life sentence currently.

Cambodian National Bank

Cambodian National Bank is making significant steps towards establishing a central bank digital currency. Cambodian authorities want to refurbish their national payment system and rebuild it as a blockchain-based, peer-to-peer platform with its own specially designed cryptocurrency. The project called Bakong was designed by the blockchain company Soramitsu, based in Japan (Tokyo) and Russian Federation (Innopolis).

Coronavirus

Coronavirus quarantine imposed by Chinese authorities may induce delays in the deliveries of mining gear. The three leading ASICs suppliers MicroBT, Bitmain and Innosilicon informed last week their customers that delays of at least one week should be expected upon the deliveries of the machines.

Ethereum

Ethereum miners are holding a record stock of ether tokens amid lower prices. The most plausible explanation for the increasing balances is the bullish sentiment prevailing in the crypto-currencies market since the beginning of the year.

Market outlook

Bitcoin price passed above the upper bound of the Bollinger Bands and the superior limit of the Keltner channel, indicating that the market may be overbought. Moreover, the RSI picked above the limit that suggests the market may overprice the leading crypto-currency. The next resistance level would be at 9800 USD, and the current market inertia or new liquidity inflows may not be sufficient, to push the Bitcoin further up.

Most likely, investors will cash-out the gains from the past week, and we may witness a series of technical sales, which may lead to a market dip. Therefore, we see the Bitcoin going below the support level of 9000 USD.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial in- strument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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