Stocks Crash, Bitcoin Rallies as Trump Accuses China of ‘Currency Manipulation’
The Dow and broader U.S. stock market crashed on Monday after China allowed its yuan currency to fall to 11-year lows against the dollar, a move that traders interpreted as an escalation of the ongoing trade war. As global equity markets sold off, the value of bitcoin jumped nearly 9% to its highest level in over three weeks.
Stocks Enter Meltdown Mode
All of Wall Street’s major indexes sold off on Monday, with the Dow Jones Industrial Average plunging by as much as 962 points. By the end of trading, the Dow 30 index was down 767.27 points, or 2.9%, to 25,717.74. It was the Dow’s largest single-day drop of 2019.
The broad S&P 500 Index extended its losing streak to six sessions, falling 3% to 2,844.74. All 11 primary sectors recorded losses, with information technology leading the market lower. Nine sectors plunged 2% or more.
A selloff in the technology sector triggered a sharp drop in the Nasdaq Composite Index, which fell 3.5% to 7,726.04.
The CBOE Volatility Index, commonly known as the VIX, surged by as much as 105.5% on Monday, reaching a high of 36.20 on a scale where 20-25 represents the historic average. As of 4:05 p.m. ET, the VIX was up 33.6% at 23.59.
China Lowers Yuan as Trade War Escalates
The Chinese government on Monday allowed its yuan currency to fall to 11-year lows against the dollar and requested state-owned companies to halt imports of U.S. agricultural products. The moves were seen as a direct response to President Trump’s tariff escalation last week.
Trump took to Twitter on Monday to accuse China of “currency manipulation” and “unfair trade practices.” Last week, he criticized Beijing for backing out of a trade deal that was supposed to be finalized in May and said the country hasn’t kept its promise to buy more U.S. agricultural goods.
….used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!
— Donald J. Trump (@realDonaldTrump) August 5, 2019
The yuan was allowed to drop as much as 1.9% to 7.1087 U.S., its lowest offshore level on record, according to The Wall Street Journal. After the devaluation, a single U.S. dollar bought slightly more than 7 Chinese yuan.
Investors may recall that China employed a similar devaluation all the way back in August 2015, which triggered a meltdown in global stocks.
Bitcoin Approaches $12,000
As global equity markets plunged, bitcoin and other cryptocurrencies appreciated on Monday. Bitcoin’s price came within $41 of $12,000, its highest in over three weeks. The largest cryptocurrency was last seen trading at $11,777 on Bitstamp, having gained 7.2%.
Bitcoin’s market cap reached $212 billion on Monday, bringing its dominance rate closer to 68%. That’s the highest in 28 months.
As many crypto enthusiasts predicted, bitcoin is proving its worth in the face of macroeconomic instability. According to new research from Binance, the ongoing trade war between the U.S. and China is directly responsible for bitcoin’s rally. The research implies that bitcoin is rising in lockstep with other safe haven assets like gold and U.S. government debt.
The global cryptocurrency market is now worth $312 billion, according to CoinMarketCap.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Charts via Yahoo Finance and TradingView.