China’s financial markets are in turmoil, and it could add more fuel to the raging bitcoin bull market. The Chinese yuan has slid to its lowest level against the U.S. dollar since September 2023, while stocks are plummeting to multi-month lows. Amid this meltdown, some observers believe capital flight from China could find a new home in alternative assets like bitcoin, accelerating BTC’s upward momentum.
The Yuan’s Decline Deepens
On Tuesday, the Chinese yuan fell to 3.22 per dollar, its weakest since September 2023. This extends a three-month losing streak for the yuan, despite efforts by the People’s Bank of China (PBOC) to calm nerves about impending U.S. tariffs under the incoming Trump administration.
The PBOC has been relying on its daily fix and liquidity measures to arrest the yuan’s slide, rather than direct intervention. But if the depreciation continues, outright dollar selling to prop up the yuan could come into play. Bitcoin bulls will need to watch out for this, as it could boost the dollar and cap gains in dollar-denominated assets.
Stock Indices Tumble
It’s not just the currency – Chinese stocks are also in freefall. The CSI 300, a gauge of the largest mainland-listed companies, dropped to its lowest point since September on Monday. The tech-heavy ChiNEXT Index has shed 8% in just the first few days of 2023.
Bonds Signal Deflation Fears
Meanwhile, yields on China’s 10-year government bonds have slumped a remarkable 100 basis points over the past year to just 1.6%. This divergence from the rising yields seen in economies like the U.S. reflects growing worries about deepening deflation in China.
Bitcoin To Benefit from Capital Flight?
Amid this market turmoil, some crypto industry observers see a silver lining for bitcoin. China’s sliding yuan and tumbling asset prices could trigger capital flight from the country. And with capital controls making it hard to move money through traditional channels, bitcoin could become “an obvious destination” for some of those outflows, according to the LondonCryptoClub.
This will accelerate capital outflows from China, which we’re seeing with Chinese stocks under pressure. Bitcoin will be an obvious destination for some of those flows, especially with capital controls in place making it difficult to get capital out of China via traditional channels.
LondonCryptoClub
They point to precedent from China’s 2015 devaluation, which propelled bitcoin 3x higher. If history rhymes, the current yuan depreciation could add more octane to BTC’s rally.
PBOC Intervention Risk
However, bitcoin bulls can’t completely dismiss the risk of the PBOC forcefully stepping in to halt the yuan’s slide. If China’s central bank starts selling dollars in open market operations to support its currency, it could boost demand for the greenback.
The U.S. dollar index has already surged from around 100 to over 108 in a span of three months, largely on the back of rising Treasury yields. Any additional dollar strength from PBOC actions could dent appetite for riskier assets, even if temporarily.
Key Factors to Watch
- Yuan’s trajectory: How low will it go? Watch the key 7.20 per dollar level
- Stock market sentiment: Further losses could accelerate capital flight
- Bond market moves: Diverging from global peers signals deflation fears
- Bitcoin prices: Will BTC attract haven flows? How sustainably?
- PBOC intervention: Dollar selling to support the yuan is a key risk
The path forward for bitcoin and cryptoassets more broadly could depend on how these factors evolve in the coming days and weeks. One thing’s for certain – all eyes will be on China as its market meltdown unfolds, watching for any spillover effects into the digital asset space.
Disclaimer: This article is for informational purposes only. None of it constitutes financial advice or an endorsement of bitcoin or any other cryptocurrency.
