Bitcoin Bull Run Could Be Accelerated by China’s Market Meltdown: Crypto Observer
The new year offered no relief for Chinese assets, which continued to slide in a meltdown that could further fuel the ongoing bitcoin (BTC) bull run.
The Chinese yuan (CNY) fell to 3.22 per US dollar early Tuesday, hitting its lowest level since September 2023, according to data source TradingView. The Chinese unit fell 0.4% this month, extending a three-month losing streak despite attempts by the People’s Bank of China to calm investor nerves about impending US tariffs under the administration of President- elect Donald Trump.
On Monday, the CSI 300, a blue-chip index for mainland China’s stock exchanges, fell to its lowest since September. The ChiNEXT Index, a so-called risk barometer that tracks the performance of innovative and high-growth SMEs in China, also fell 8% since Dec. 31, according to charting platform TradingView.
Finally, the yield on the 10-year Chinese government bond fell to 1.6%, a sharp drop of 100 basis points from a year ago. This continued decline contrasts sharply with rising yields in advanced economies, including the US, and reflects growing concerns over worsening deflation.
All of this is likely to trigger capital flight from the country, potentially boosting demand for alternative investments like bitcoin, according to LondonCryptoClub.
“China appears to be letting the currency slide and not defending it, allowing the peg to creep if not an outright devaluation. This will accelerate capital outflows from China, which we see in the China’s stock is under pressure. Bitcoin will be the obvious destination for some of those flows, especially if there are capital controls that make it difficult to get capital out of China, ” said the Founders of LondonCryptoClub on CoinDesk.
“When China devalued in 2015, Bitcoin immediately traded more than 3x higher,” the founders added.
Note that the PBOC relies only on its daily adjustments and other liquidity measures to prevent the slide in the yuan rather than outright intervention, which could be a headwind for crypto.
On Monday, the PBOC set the daily reference rate stronger than the widely watched 7.20 per USD in a bid to moderate CNY expectations. The daily fix is the central bank’s preferred tool in managing market expectations and has consistently held stronger than 7.20 per USD since Trump’s US election victory in early November. .
Meanwhile, the PBOC also took steps to tighten liquidity in the offshore (Hong Kong) market to support the yuan, as evidenced by the increase in the overnight interbank interest rate of the offshore yuan in Hong Kong which rose to 8.1%, the highest from June 2021.
That said, BTC bulls are needed keep an eye on it a potential outright intervention involving the sale of dollars to prop up the yuan, as it could boost the dollar index, preventing a rise in greenback-denominated assets like BTC.
Whenever the PBOC sells the dollar to prop up the yuan, it simultaneously buys the greenback against other currencies to keep the proportion of USD in reserves stable. The process, thus, causes financial restriction through the FX channel.
The dollar index has risen from around 100 to 108 in just three months, largely tracking the rise in Treasury yields. Additional strength may remove investor appetite for riskier assets.
