The start of the new year brings little solace to Chinese assets, which are in a meltdown that might just propel the bitcoin (BTC) bull run to new heights.
This week saw the Chinese yuan (CNY) tumble to 3.22 per U.S. dollar, marking its lowest point since September 2023, according to TradingView data. The yuan has experienced a 0.4% decline this month, continuing a three-month losing streak, despite efforts from the People’s Bank of China to calm anxious investors fearing the impact of impending U.S. tariffs under President-elect Donald Trump.
Monday was grim for Chinese equities as well, with the CSI 300—a key index tracking mainland China’s major stocks—falling to its lowest level since September. The ChiNEXT Index, known as a risk gauge for China’s innovative and high-growth SMEs, has seen an 8% drop since December 31, reported TradingView.
Adding to the woes, the yield on the 10-year Chinese government bond has plummeted to 1.6%, a staggering 100 basis point drop compared to last year. This trend sharply contrasts with rising yields in advanced economies like the U.S., signaling increasing worries over worsening deflation.
Such economic struggles could lead to significant capital flight from China, potentially increasing the demand for alternative investments like bitcoin, according to the LondonCryptoClub.
China is seemingly allowing its currency to weaken, as they stop defending the yuan, which may trigger more capital outflows. The founders of LondonCryptoClub told CoinDesk, “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.” They reminded us that, “When China devalued in 2015, Bitcoin promptly traded over 3x higher.”
It’s worth mentioning that the PBOC has relied on its daily fix and other liquidity measures rather than outright intervention to combat the yuan’s decline, which can present challenges for cryptocurrency investors. Recently, the PBOC set the daily reference rate stronger than the key 7.20 per USD to curb bearish expectations surrounding the CNY.
In a bid to support the yuan, the PBOC has also limited liquidity in the offshore (Hong Kong) market, leading to a surge in the offshore yuan’s overnight interbank interest rate, which recently hit 8.1%, the highest since June 2021.
Nonetheless, BTC enthusiasts should be vigilant for any substantial interventions, such as selling dollars to prop up the yuan, as this could strengthen the dollar index, limiting potential gains in dollar-denominated assets like BTC.
Whenever the PBOC sells dollars to stabilize the yuan, it simultaneously buys dollars against other currencies, which could lead to financial tightening in the foreign exchange market. The dollar index has already skyrocketed from around 100 to 108 in just over three months, propelled largely by rising Treasury yields, which could stifle investor interest in riskier assets.
With the current market turbulence in China, all eyes are on BTC as it may just be the shining beacon for those seeking refuge amid uncertainty. The potential for rapid growth in bitcoin remains tantalizing for investors looking for alternatives.
