This article is just something I wrote casually. I hope it can be helpful to everyone. If it is not helpful, just read it for fun. Some of the content comes from online documents. The content of this article does not constitute any investment advice.

Recently, I have been browsing TikTok and watching some media accounts, all of which are talking about the coming wave of currency depreciation in Asia, a scaled-down version of a currency war. Why do I say it is a scaled-down version? Because the scope of impact is not very large and the affected areas are relatively small.

What is the impact of currency wars on cryptocurrencies:

Many aspects and angles!

1: Increased demand for safe-haven assets: In currency wars, countries increase export competitiveness by devaluing their currencies, which may lead to instability in the traditional monetary system, thereby increasing investors' demand for safe-haven assets such as gold and cryptocurrencies (especially Bitcoin). Therefore, in some cases, currency wars may push up the price of cryptocurrencies.

2: Increase the awareness and acceptance of cryptocurrencies: As the currency war develops, more people begin to pay attention to asset classes outside the financial system. As an emerging asset class, cryptocurrencies are independent of the traditional financial system and may attract investors seeking financial diversification. This trend helps increase the awareness and acceptance of cryptocurrencies.

3: Increased market volatility: Currency wars increase uncertainty in global financial markets, which may be transmitted to the cryptocurrency market, leading to increased volatility in cryptocurrency prices. Although the cryptocurrency market itself is volatile, currency wars may further increase this volatility.

4: Increased regulatory pressure: In the context of currency wars, some countries may strengthen regulation of cryptocurrencies to prevent capital outflows or maintain the stability of their own currencies. This increased regulatory pressure may have a negative impact on the cryptocurrency market and restrict its development.

5: Promote cryptocurrency innovation and application: In the long run, currency wars may promote innovation in cryptocurrency technology and applications. In order to cope with the instability brought about by currency wars, developers and companies may develop more innovative cryptocurrency products and services to meet market demand.

The impact of currency wars on cryptocurrencies is complex and varied, including both positive impacts, such as increasing demand for safe-haven assets and improving awareness and acceptance of cryptocurrencies, as well as negative impacts, such as increasing market volatility and increasing regulatory pressure.

What is the impact of currency wars on risk asset markets:

Currency wars, i.e., the competitive behavior between countries to improve export competitiveness, reduce imports, and stimulate economic growth by devaluing their currencies, have complex impacts on risk asset markets (such as stocks, corporate bonds, etc.). These impacts include both direct and indirect impacts, as shown in the following five points:

1: Increased market volatility: Currency wars increase uncertainty and volatility in global financial markets. In an environment of increased uncertainty, investors may reduce their investments in risky assets and instead invest in assets that are seen as safer, such as gold and government bonds, which could lead to a decline in risky asset prices.

2: Reduce investor confidence: The ongoing currency war may damage investors' confidence in the economic outlook, causing investors to reduce their investment in risky assets. When investors are pessimistic about future economic growth, they may be more inclined to hold cash or invest in low-risk assets.

3: Impact on corporate profits: Currency depreciation may affect the profits of multinational companies. On the one hand, for export-oriented companies, currency depreciation may increase the competitiveness of their products in the international market, thereby increasing their revenue and profits; on the other hand, for companies that rely on imported raw materials, currency depreciation may increase costs, thereby compressing profit margins. These factors will ultimately affect the company's stock price and bond issuance conditions.

4: Capital Flows: Currency wars may cause capital to flow from some countries to other countries in search of higher returns or a safer investment environment. Such capital flows may affect risk asset markets in specific countries or regions, raising asset prices in some markets and lowering asset prices in other markets.

5: Interest rate environment: In order to counter the impact of currency wars, central banks may adjust interest rate policies, which directly affects the valuation of risky assets. For example, if the central bank lowers interest rates to support the economy, this may increase the attractiveness of stocks and corporate bonds, because in a low interest rate environment, bond yields fall, and investors may turn to the stock market for higher returns.

The impact of currency wars on risk asset markets is multi-dimensional, including impacts on market volatility, investor confidence, corporate earnings, capital flows and interest rate environment. Investors need to consider these factors and how they may affect the performance of specific assets when making investment decisions.

Is there any connection between currency war and central bank’s interest rate cut?

There is a certain correlation between currency wars and central bank rate cuts, but they are not exactly the same concept. The following will explain the connection and difference between the two.

Currency war:

Currency wars usually refer to strategies by which a country or region devalues ​​its currency to increase the competitiveness of its exports and reduce imports, thereby stimulating the domestic economy. This strategy may be achieved through direct intervention in the exchange rate market, implementation of loose monetary policy, etc. Its purpose is to gain economic advantages over other countries by changing the exchange rate.

Central bank rate cuts:

A central bank rate cut is an action by a central bank to lower its benchmark interest rate, which is generally considered a loose monetary policy. The main purpose of a rate cut is to stimulate economic growth and encourage consumption and investment by individuals and businesses by reducing borrowing costs. A rate cut may also affect the value of a country's currency, as lower interest rates may reduce foreign investors' demand for assets in that currency, which may lead to a depreciation of the currency.

Relevance:

Currency devaluation through rate cuts: In some cases, central bank rate cuts can be viewed as part of a currency war. If multiple countries or regions cut rates at almost the same time to stimulate their respective economies, this can lead to a relative currency devaluation race. In this case, although the direct purpose of the rate cuts is to stimulate the domestic economy, their indirect effects may have contributed to or exacerbated the currency war.

Strategic Differences: However, central banks do not always cut interest rates to engage in currency wars. In many cases, rate cuts are simply to respond to a domestic economic slowdown, rather than to gain an advantage in international trade by weakening the currency.

While there is a certain connection between currency wars and central bank rate cuts, especially when rate cuts may lead to currency depreciation and thus increase export competitiveness, the two are not completely the same. Central bank rate cuts are mainly a policy tool for domestic economic conditions, while currency wars are more about exchange rate competition between countries for economic interests.

Did the currency war happen first, prompting the central bank to cut interest rates, or did the central bank cut interest rates first, leading to the currency war?

The causal relationship between currency wars and central bank interest rate cuts is not unidirectional, but rather mutually influential and interactive. The dynamic relationship between the two depends on a variety of factors, including the global economic environment, the economic policy goals of various countries, and the international political and economic landscape.

Central bank rate cuts lead to currency wars:

In some cases, a single country or multiple countries may first respond to a domestic economic slowdown by cutting interest rates, intending to boost growth by stimulating economic activity. Cutting interest rates can reduce borrowing costs and encourage consumption and investment, but it may also cause the value of the country's currency to fall relative to other currencies. If this currency depreciation is seen by other countries as a threat to their export competitiveness, they may take similar currency depreciation measures to protect their own economic interests, triggering a "currency war."

Currency wars prompt central banks to cut rates:

On the other hand, the beginning of a currency war may be due to the devaluation of the currencies of certain countries in order to enhance their export competitiveness. In this case, other countries may respond by promoting the devaluation of their currencies through interest rate cuts and other means in order to prevent their currencies from becoming too strong and maintain the price competitiveness of their export goods and services, thus passively participating in the currency war.

interaction:

In fact, the relationship between currency wars and central bank interest rate cuts is often more complicated, and they can be mutually reinforcing processes. A country's decision to cut interest rates may be based on considerations of domestic economic conditions, but in a globalized economic environment, such a decision will affect the economic and monetary policy choices of other countries, and may lead other countries to take responsive measures, such as interest rate cuts or other forms of monetary policy adjustments, to protect their economic interests.

In addition, factors such as changes in the global economic environment, international political and economic events, and changes in multilateral or bilateral relations may affect the monetary policy decision-making process and the development of currency wars.

Therefore, there is no absolute answer to the question of "which came first, the chicken or the egg". The causal relationship between central bank rate cuts and currency wars may vary in different historical periods and specific situations.

In this round of the Iran-Israel incident and the risk tide of Asian currency depreciation in recent days, gold and bitcoin did not show safe-haven properties. They may have been overshadowed by the strong rebound of the US dollar. However, the US dollar has now reached the weekly pressure level of 107 at the end of November 22, and gold is still strong. Many factors of poor performance come from the currency circle. I personally think that it has little to do with the Iran-Israel incident as many people think. I have posted before, emphasizing that this time is undoubtedly a bull market, "but it is a slow bull market." It is not too much to run from 2025 to 2026, so I don’t advise everyone not to rush. Anyway, I personally am not in a hurry.

Regarding the interest rate cut, I personally think that we should still focus on the global situation, and not just focus on the United States. We can carefully interpret the above question "Does the currency war come first, prompting the central bank to cut interest rates, or does the central bank cut interest rates first lead to the currency war?" ECB's Lagarde also stated in an article a few days ago that there will be no major events and the interest rate will be cut soon. I personally think that this major event is unlikely to happen.

There will be short-term wash-outs. If you are curious, you can check the contract positions to find out. There is nothing wrong with being bullish in the long term!

We cannot influence the market, nor can we control the market, but we can control our own positions, so that our emotions are not affected by the drastic market fluctuations. We can follow the market that we can understand and earn the money that we can understand. We should not worry about small things and be cautious about big things. We should not let our positions stand on the edge of the cliff, and we should not always feel that we are going to miss out. If our positions are small, we will earn less.

In many cases, it is not wrong to have a small capital or position, but it is wrong to have too much desire and be too greedy. #大盘走势 #货币贬值 #降息 #BTC🔥🔥🔥🔥🔥🔥