Welcome Back Bitcoin

The fun started last week when the PBOC devalued the CNY to the weakest level since March 2011. Obviously this was a warning shot fired at Grandma Yellen. She didn’t get the message and continued her hawkish rhetoric last Friday.

Fundamentals and Bitcoin don’t mix well. Given that China rules Bitcoin, Chinese monetary policy is always relevant. The massive Chinese debt bubble is talked about by every serious global macro investor. Choose the day, and some prominent hedge fund or money manager is sounding the alarm about a credit blowup of gargantuan proportions.

The expansion of the PBOC’s balance sheet is almost a fait accompli. The only question is when and how much will the PBOC allow the Yuan to devalue. After taking a 4 month break, the PBOC reasserted itself as the central bank to watch out for after the Fed.

Against the backdrop of the PBOC vs. the Fed currency war, Bitcoin received a major boost that only China could provide. The price touched a high of 3,988 CNY ($607) early this morning Asia time. Bitfinex reached $570. The China premium at times this weekend hovered near 10%.

It is not coincidental that the weekend after the PBOC sliced the CNY, Bitcoin surpassed its November 2015 high. The 2016 summer of global macro love is just beginning. Brexit, CNY devaluation, another Fed rate hike, the Greece melodrama; all of these events are contributing to an increase in uncertainty. Bitcoin and the digital currency space will thrive on this uncertainty over the next three months.

Can’t stop, won’t stop. Today the PBOC continued the devaluation by whacking the yuan lower by another 0.50%. This weekend was the preamble. With banks in China and Europe open today, and tomorrow in the US, fresh fiat currency will look for a new home in Bitcoin. The buying pressure will fade quickly if the Fed gets the hint and walks back its hawkish rhetoric. However given the Fed generally will not rock the boat in the heat of the presidential election, the next meeting is do or die time for a rate hike.