What to know:
2022’s start hasn’t brought any respite for Chinese assets; instead, they persistently drop, potentially intensifying the existing surge of Bitcoin (BTC).
On Tuesday morning, the value of the Chinese yuan (CNY) dipped to 3.22 against the U.S. dollar, marking its lowest point since September 2023, as per data from TradingView. This month alone, the Chinese currency has dropped by 0.4%. This decrease continues a three-month downward trend, despite efforts by the People’s Bank of China to allay investor concerns regarding potential U.S. tariffs under President-elect Donald Trump’s administration.
On Monday, China’s mainland blue-chip index, known as the CSI 300, reached its lowest point since September. Additionally, the ChiNEXT Index, often referred to as a ‘risk indicator’, which monitors the performance of innovative and fast-growing small and medium enterprises (SMEs) in China, has decreased by 8% since New Year’s Eve, based on data from TradingView.
To wrap up, the return on the 10-year Chinese government bond currently stands at 1.6%, representing a significant decrease of 100 basis points compared to this time last year. This consistent decline is in stark contrast to the increasing yields observed in developed economies, such as the U.S., and indicates mounting apprehension about escalating deflation.
It seems that these circumstances could lead to a wave of money being taken out of the nation, which might increase interest in other investment options like Bitcoin, as suggested by LondonCryptoClub.
The Founders of the LondonCryptoClub stated to CoinDesk that it seems like China is no longer maintaining its currency’s value, allowing it to gradually weaken if not purposely devaluing it. This situation may speed up the movement of capital out of China, which is evident in the current struggles of Chinese stocks. Given the capital controls and difficulties in moving money out of China through conventional means, Bitcoin appears to be an attractive alternative for some of these funds.
“When China devalued in 2015, Bitcoin promptly traded over 3x higher,” founders added.
It’s worth mentioning that instead of direct intervention, the People’s Bank of China (PBOC) has primarily used its daily fixing and various liquidity tools to counteract the depreciation of the yuan. This approach contrasts with outright intervention, which could potentially pose challenges for cryptocurrencies.
On Monday, the People’s Bank of China (PBOC) established a higher daily exchange rate compared to the commonly monitored 7.20 yuan per US dollar, an attempt to dampen speculations about the Chinese Yuan depreciating. Since Trump’s election win in early November, this daily rate has been consistently stronger than 7.20 per USD, reflecting the central bank’s strategy in influencing market predictions.
Additionally, the People’s Bank of China (PBOC) has made adjustments to strengthen liquidity control within the offshore market based in Hong Kong. This is demonstrated by the significant increase in the overnight interbank interest rate for the offshore yuan in Hong Kong, which reached 8.1%, the highest since June 2021.
In simpler terms, Bitcoin investors should stay vigilant if there’s a possibility of direct economic action where dollars are sold to strengthen the Chinese Yuan. This move could increase the value of the U.S. Dollar Index, potentially limiting the growth of Bitcoin and other dollar-tied assets.
Whenever the People’s Bank of China (PBOC) sells dollars to strengthen the yuan, it also purchases dollars using other currencies to maintain a consistent ratio of US dollars in its reserves. This action indirectly results in a tightening of finances through the foreign exchange (FX) channel.
As a crypto investor, I’ve noticed that the Dollar Index has significantly climbed from around 100 to 108 within roughly three months. This surge seems to be closely linked with the rise in Treasury yields. If this trend continues, it might diminish the allure for riskier investments like cryptocurrencies, making me more cautious about my portfolio.
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2025-01-07 12:30