Bitcoin dropped sharply over the weekend but has climbed back since then; US stops declaring Vietnam, Switzerland and Taiwan as currency manipulators
•Bitcoin slumped 14% over the weekend due to power outage in China
•US stops declaring Vietnam, Switzerland and Taiwan as currency manipulators
•Austria’s government raises forecast on public spending due to lockdowns
Bitcoin fell about 14% to $51,541 on Sunday, reversing much of the gains over the past week. Currently it is back at around $56,965, up about 2.29% since opening. The drop was primarily due to the blackout in China’s Xinjiang region, which powers a significant share in Bitcoin mining. The power outage has exposed a fundamental weakness that, despite Bitcoin being decentralized itself, the mining is not. Hash rate, referring to the volatility index that measures the processing capacity, has dropped significantly due to the outage. The rate determines the power required by miners to produce new coins. When hash rate declines, transactions usually slow down, making it harder to move coins to exchanges for sale. Many investors, however, view this drop as more of a noise than a signal. Despite the sudden selloff, Bitcoin is still up about 90% in 2021 so far, mostly driven by retail and day traders who are encouraged by mainstream institutions’ acceptance of Bitcoin as an investment.
The US Treasury Department issued its first semi-annual foreign exchange report under Janet Yellen. The report did not label Vietnam, Switzerland and Taiwan as currency manipulators despite that they have triggered the threshold under a 2015 US trade law. Treasury said that, it has taken account the distortion under the pandemic which may have resulted in various monetary policy choices taken by local governments. For Taiwan, Treasury said it would initiate enhanced engagement in line with the Trade Facilitation and Trade Enforcement Act of 2015. It expects those talks to help determine if Taiwan manipulated its currency. Switzerland rejected Treasury’s assessment and denied that it engaged in any form of currency manipulation. No immediate reaction was available from Vietnam.
Government of Austria is adjusting its forecast for 2021 tax revenue and public spending, which may lead to a bigger budget deficit. This act has considered the lockdown impact from the pandemic. Planned payments stand at 97.4 billion euros, an increase of 5.5 billion compared with the previous plan. Meanwhile, tax revenue will also be adjusted to decrease by 2.6 billion euros. The new deficit will likely be brought up to 30.7 billion euros. Government’s debt ratio will also rise 1.7% to 89.6% of GDP. The government has also said that, more money would be available if needed.
This coming week, we will have Bank of Canada and ECB to determine the interest rates. The US will see its Markit Manufacturing PMI data. In the stock market, earnings season is also in full swing.