The Potential for Inflows
Bitcoin (BTC) may experience significant inflows from China in the coming months due to a weakening Chinese yuan and a surge in capital flight. Mark Thielen, head of research and strategy at Matrixport, suggests that Chinese investors' familiarity with Bitcoin during times of economic downturns could result in substantial inflows over the next few months.
China's Growing Capital Flight
The latest official data compiled by Bloomberg reveals that China's capital outflows in August reached $49 billion, marking the largest monthly outflow since December 2015. This growing capital flight puts further pressure on the Chinese yuan.
The Weakening Chinese Economy
Thielen explains that the trade of the U.S. dollar to Chinese yuan (USD/CNY) is currently at a 17-year high, indicating the strong expansion of the U.S. economy contrasted with the weak growth momentum of the Chinese economy. The post-COVID-19 consumption rebound has underwhelmed, and authorities have not implemented sufficient measures to support economic growth. As a result, local companies are struggling with weak margins due to the absence of growth.
Investors Seeking Opportunities Abroad
The combination of pressure on the yuan and the lack of growth in Chinese companies could drive investors to search for opportunities outside of China. However, strict capital controls in the country limit options for investors. Thielen suggests that cryptocurrency may be one of the few viable channels available, given its decentralized nature.
Hope for Bitcoin
BitMEX co-founder Arthur Hayes and other analysts believe that Chinese capital may already be flowing into alternative assets like gold and U.S. dollar offshore debt. They also express hope that some of this capital will find its way into Bitcoin.
The Changing Landscape for Bitcoin and Chinese Capital
While Bitcoin saw increased interest from Chinese investors in 2016 as a means to move capital out of the country, Edward Engel, a crypto analyst, argues that the impact may not be the same this time. He suggests that the Chinese government has already taken measures to curb the use of Bitcoin for illicit purposes.
Potential Surviving Methods
Despite the restrictions, Thielen believes there may still be viable methods for Chinese capital to enter the crypto space. These methods include using domestic electricity to mine cryptocurrency and utilizing over-the-counter (OTC) traders to purchase Tether (USDT) via Tron for international crypto transfers.
Bitcoin's Current Price
The price of Bitcoin has remained relatively stable between $25,000 and $27,000 since mid-August. It is currently trading at $26,621, according to Cointelegraph Markets Pro.
