Within the next few months, Bitcoin may experience “substantial inflows” from China due to the depreciation of the Chinese Yuan currency and one of the largest capital outflows in recent memory. In this manner, China suffers the worst capital flight in years.
The co-founder of the well-known P2P crypto products trading platform BitMEX, Arthur Hayes, has hinted at a related possibility in a post dated September 20 on social media site X. He suggested that Chinese cash may already be transferring to gold and paying off US dollar offshore debt. Additionally, he expressed the hope that a few of the money might “find its way” to Bitcoin
The amount of capital leaving China this year is almost unprecedented and something which has caught the eyes of the world over. It is being called the greatest amount to be lost by the country’s capital inventory in over eight years. The observation has analysts arguing over the possibility of whether it could, and eventually would, end up benefiting Bitcoin and other cryptocurrencies.
Chinese national economy drained
The largest monthly outflow of Chinese capital since December 2015, according to the most recent official statistics collated by Bloomberg, was $49 billion. This occurred in August, very likely putting additional pressure on the Yuan currency in the course.
According to Markus Thielen, head of research and strategy at Matrixport, in the time and circumstance of a slumping domestic economy in China, the acquaintance of Chinese investors with Bitcoin could potentially fetch significant quantities of capital receipts into Bitcoin “over the next few months” – even though China suffers worst capital flight. Press release reports quote Thielen as providing the reason for China’s sorry state of economy, “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.”
He has also opined that the “absence of growth” among domestic enterprises and ongoing pressure on the Yuan may lead to investors looking for prospects outside of China. However, he asserted that given the nation’s severe capital controls, cryptocurrency might end up being one of the few available routes, saying, “Crypto might be one of the only viable options.
Thielen, in this context, has reminded people that the USD/CNY exchange rate is at a 17-year high as a result of the U.S. economy’s robust growth and the Chinese economy’s apparent lacklustre growth pace.
Looking at Past Indications
The trading activity out of China at the time hinted at a potential connection between the Chinese yuan’s value and the cost of Bitcoin, which afterwards soared in late 2017. Reports that investors in China were actively turning to Bitcoin to transfer money out of the country in late 2016 seemed to confirm this narrative for Bitcoin and make further evidence that even though China suffers the worst capital flight, it would ultimately do good to cryptocurrencies.
But crypto expert Edward Engel of Singular Research contends that because of this, a Chinese capital flight now might not have the same effect on Bitcoin as it did back then. In a comment to Cointelegraph, Engel said, “This is not something I’ve heard. The last time I heard of something like this was in 2017 or 2018.” He recounted that this happened when ‘junkets’ were exploiting Bitcoin to sustain disreputable financial institutions. “But we all know the CCP [Chinese Communist Party] plugged those holes a while ago,” the analyst said.
It is to be mentioned that ‘junkets’ are businesses that assist wealthy Chinese gamblers in sending large quantities of money abroad. Since then, China has severely repressed these shady companies.
In the face of a vast majority of views to the contrary, Engel has said that he would be astonished if people were still using outdated methods in China because the country has become rather skilled at preventing outflows.
However, Thielen asserts that there may still be ways for Chinese money to use cryptocurrencies, such as via mining cryptocurrencies using domestic electricity or by utilizing over-the-counter traders to purchase Tether via Tron to transport cryptocurrencies overseas – ostensibly in defiance of prohibitions. Since the middle of August, the price of Bitcoin has stayed between $25,000 and $27,000. As per Cointelegraph Markets Pro, it is presently trading at $26,621.