April 19, 2024
China's Severe Capital Flight Spurs Bitcoin Speculation
Latest Cryptocurrency News

China’s Severe Capital Flight Spurs Bitcoin Speculation

Bitcoin may witness significant inflows from China in the coming months due to a weakening Chinese yuan and escalating capital flight from the country. Markus Thielen, Head of Research and Strategy at Matrixport, suggests that Chinese investors are growing more acquainted with Bitcoin during periods of economic instability, potentially leading to substantial investments in the cryptocurrency.

According to recent official data compiled by Bloomberg, China experienced capital outflows of $49 billion in August, marking the highest monthly outflow since December 2015.

This could exert further pressure on the yuan, especially as the USD/CNY exchange rate reaches a 17-year high. Thielen also points out that the U.S. economy is robustly expanding while the Chinese economy appears to have weak growth momentum.

“The post-COVID-19 consumption rebound underwhelmed, and the authorities have not implemented enough countercyclical measures to support the economy. Chinese companies are suffering from weak margins in the absence of growth,” said Thielen.

Thielen believes that due to continued pressure on the yuan and the “absence of growth” among local companies, investors may start seeking opportunities outside of China. Despite China’s strict capital controls, he argues that cryptocurrencies might be one of the few viable options for capital flight.

BitMEX co-founder Arthur Hayes has also alluded to a similar possibility, suggesting that Chinese capital may already be flowing into assets like gold and paying down U.S. dollar offshore debt, with hopes that some of it might eventually find its way into Bitcoin. This narrative played out in late 2016 when Chinese investors turned to Bitcoin to move capital out of the country, coinciding with Bitcoin’s price surge in late 2017.

However, crypto analyst Edward Engel suggests that the impact of a Chinese capital flight on Bitcoin might differ from previous instances due to evolving circumstances. He notes that China has taken measures to prevent capital outflows since then and mentioned the crackdown on organizations known as “junkets,” which facilitated the movement of large sums of money abroad for wealthy Chinese individuals. Despite this, Thielen believes that there could still be ways for Chinese capital to utilize cryptocurrencies, such as utilizing domestic electricity for crypto mining or engaging over-the-counter traders to acquire Tether via Tron for international crypto transfers.

As of now, Bitcoin’s price has remained in the range of $25,000 to $27,000 since mid-August, with the current trading price at $26,621.

Image by fabrikasimf on Freepik

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