Last weekend witnessed a pivotal geopolitical event that might influence international relations and economic trajectories in significant ways: U.S. Treasury Secretary Janet Yellen’s visit to China. This diplomatic endeavor occurred amid a backdrop of escalating geopolitical tensions between the two superpowers. Delving into the details of this event, we unravel the potential implications of this crucial visit on the global stage, with particular focus on the crypto industry.

Increasingly Frosty U.S.-China Relations

To set the stage, it’s important to understand the chain of retaliatory actions preceding this visit. Earlier this month, the U.S. mulled over additional restrictions on microchip sales to China, a crucial component in AI technology. In response, China declared its intention to restrict the export of rare earth minerals, integral in producing AI chips.

Following this, the U.S. proposed an idea that could be potentially debilitating for China – cutting off access to American Cloud Computing Services such as Amazon Web Services, Microsoft Azure, and Google Cloud. Considering that these three services account for almost 70% of global cloud computing, this move could deliver a serious blow to China’s technology infrastructure.

Yellen’s Landmark Visit

Against this turbulent backdrop, Janet Yellen’s visit to Beijing was a major event. Her rendezvous with the Chinese Community Party’s (CCP) top brass, including the recently appointed governor of the Bank of China, drew significant attention. This key figure is known to be behind the country’s crackdown on cryptocurrency and its restrictive measures on the housing sector.

However, what seemed peculiar was the brevity of the meeting – a mere ten hours with the CCP’s elite. With no significant progress made on any particular issue and Yellen’s continued hawkish stance on the U.S.’s recent restrictions on China, her visit appears intriguing. Logic would dictate that if China was struggling, it would be sending delegates to the U.S. for negotiations, not vice versa. Moreover, Yellen seemed unusually upbeat while meeting with the CCP leaders – a demeanor captured on camera, triggering speculative chatter among analysts.

Analyzing The Underlying Motives

Macro analyst Michael Howell believes that Yellen’s trip might be connected to the recent weakness in the Chinese Yuan. He postulates that the U.S., with Japan’s assistance, has been deliberately devaluing the Yuan, and Yellen’s visit aimed to push for concessions from the CCP in exchange for the U.S. easing its devaluation efforts.

However, an alternate hypothesis is that Yellen’s trip was a strategy to dissuade China from selling too much U.S. government debt when trying to defend the Yuan. This theory gains credence considering the Bank of China’s recent intervention to support the Yuan, selling U.S. bonds for U.S. dollars to purchase Yuan. Given the potential for excessive sales of long-term U.S. government debt to destabilize the U.S. banking system, it seems plausible that Yellen’s mission might be to prevent a massive offloading of U.S. bonds by China.

A High-Stakes Standoff

In essence, a high-stakes Mexican standoff appears to be brewing between the U.S. and China. The U.S. threatens to curtail China’s access to chips and devalue the Yuan, while China retaliates by restricting U.S. access to chip-making minerals and potentially selling U.S. bonds to fortify the Yuan.

This tense dynamic between the two superpowers could profoundly impact the crypto industry. The geopolitical chessboard’s power dynamics, coupled with ongoing trade and technology-related frictions, could shape the trajectory of crypto, as well as the broader economy, in unforeseen ways.