Bitcoin (BTC) could experience a significant increase in investments from China in the coming months due to the country’s weakening yuan and a surge in capital outflows. According to Markus Thielen, the head of research and strategy at Matrixport, Chinese investors are becoming familiar with Bitcoin as a safe haven during times of economic turmoil, and this could lead to substantial inflows into the cryptocurrency.
Recent data compiled by Bloomberg shows that China’s capital outflows hit $49 billion in August, marking the largest monthly capital outflow since December 2015. This increase in capital outflows may put further pressure on the yuan, which is already trading at a 17-year high against the USD. Thielen explains that the Chinese economy’s weak growth momentum and the absence of countercyclical measures have contributed to the decline in consumer spending and weak margins for local companies. As a result, investors are likely to search for opportunities outside of China, and cryptocurrencies, due to the country’s strict capital controls, may be one of the few viable options.
BitMEX co-founder Arthur Hayes also alluded to the possibility of Chinese capital flowing into Bitcoin and other assets like gold and US dollar offshore debt. He expressed hope that some of this capital would find its way into Bitcoin, suggesting a potential increase in demand for the cryptocurrency.
This narrative has previously played out for Bitcoin in late 2016 when reports emerged that Chinese investors were using Bitcoin as a means of moving capital out of the country. At that time, the trading volume out of China indicated a potential link between the value of the yuan and the price of Bitcoin, which eventually reached its peak in late 2017.
However, Edward Engel, a crypto analyst at Singular Research, believes that a Chinese capital flight today may not have the same impact on Bitcoin as it did in the past. Engel suggests that China has become adept at preventing capital outflows, and the methods used in the past may no longer be effective. He cites the crackdown on junkets, organizations that helped wealthy Chinese individuals move money overseas, as evidence of China’s tightening control over capital movements.
Despite the challenges, Thielen argues that there are still ways for Chinese capital to enter the crypto market. He suggests that Chinese investors may utilize domestic electricity to mine cryptocurrencies or use over-the-counter traders to purchase Tether (USDT) via Tron and then send the crypto assets internationally. These methods potentially allow investors to bypass restrictions and continue investing in cryptocurrencies.
Currently, the price of Bitcoin has been hovering between $25,000 and $27,000 since mid-August. With the potential for increased investments from China, it remains to be seen how this will impact the cryptocurrency’s price moving forward.
In conclusion, the weakening yuan and China’s increasing capital outflows could lead to substantial inflows of Bitcoin from Chinese investors in the coming months. Despite China’s strict capital controls, cryptocurrencies like Bitcoin may be one of the few options available for investors seeking opportunities outside of the country. However, it is important to note that the impact of a Chinese capital flight on Bitcoin may not be as significant as it was in the past due to China’s tightening control over capital movements.