The new year has offered no relief for Chinese assets, which continue to slide into a crisis that could further fuel the current bitcoin (BTC) bull run.
The Chinese yuan (CNY) fell to 3.22 per US dollar early on Tuesday, hitting the lowest level since September 2023, according to data source TradingView. The Chinese unit has fallen 0.4% this month, extending a three-month bearish trend despite attempts by the People’s Bank of China to calm investor nerves over looming US tariffs under President-elect Donald Trump’s administration. .
On Monday, the CSI 300, a blue-chip index for mainland Chinese stock markets, fell to the lowest level since September. The ChiNEXT index, the so-called risk barometer that tracks the performance of innovative and high-growth SMEs in China, has also fallen 8% since December 31, according to charting platform TradingView.
Finally, the 10-year Chinese government bond yield has fallen to 1.6%, a notable 100 basis point drop from a year ago. This ongoing decline contrasts sharply with rising yields in advanced economies, including the United States, and reflects growing concerns about worsening deflation.
All of this is likely to trigger a flight of capital from the country, which could boost demand for alternative investments like bitcoin, according to LondonCryptoClub.
“China appears to be letting the currency slide and is no longer defending it, allowing the peg to plummet, if not an outright devaluation. This will accelerate capital outflows from China, which we are seeing with Chinese stocks under pressure. Bitcoin will be an obvious choice “The fate of some of those flows, especially with capital controls in place making it difficult for capital to leave China through traditional channels,” the founders of LondonCryptoClub told CoinDesk.
“When China was devalued in 2015, Bitcoin quickly traded more than 3 times higher,” the founders added.
Note that the People’s Bank of China has relied solely on its daily settlement and other liquidity measures to stop the yuan’s decline rather than direct intervention, which may become a roadblock for cryptocurrencies.
On Monday, the People’s Bank of China set the daily reference rate above the widely watched 7.20 per dollar in a bid to temper bearish CNY expectations. The daily price has been the central bank’s preferred tool for managing market expectations and has remained consistently above 7.20 per dollar since Trump’s victory in the US election in early November.
Meanwhile, the People’s Bank of China has also taken measures to restrict liquidity in the offshore market (Hong Kong) to support the yuan, as evidenced by the increase in the offshore yuan overnight interbank interest rate in Hong Kong, which increased to 8.1%, the highest since June 2021. .
That said, BTC bulls should be on the lookout for possible direct intervention involving the selling of dollars to prop up the yuan, as that could boost the dollar index, limiting the rise of dollar-denominated assets like BTC.
Every time the People’s Bank of China sells dollars to prop up the yuan, it simultaneously buys dollars against other currencies to keep the dollar’s share of reserves stable. Therefore, the process causes a financial restriction through the exchange channel.
The dollar index has already risen from about 100 to 108 in just over three months, largely tracking the rally in Treasury yields. Further strength could dampen investors’ appetite for riskier assets.
