Bitcoin Specialists Optimistic as China’s Yuan Unexpectedly Dips Below 7.2
Industry experts indicate that the recent depreciation of the yuan could lead to increased investment in bitcoin.
PBOC hints openness to weaker yuan in a supposedly bullish sign for BTC.
Key Points
- China allowed the yuan to dip below a critical threshold, likely as a reaction to U.S. tariffs.
- Experts argue that this depreciation may cause capital flight into bitcoin.
China eased its control over the yuan on Tuesday, permitting it to dip below a significant level, possibly in response to President Donald Trump’s tough tariffs. Cryptocurrency analysts predict that this depreciation could inflate bitcoin’s attractiveness (BTC), drawing parallels to events from ten years back.
On Tuesday morning, the People’s Bank of China (PBOC) established the daily yuan fix at 7.2038 per dollar, marking its lowest since September. Unlike freely floated currencies like the USD or euro, the yuan is allowed to trade within 2% of a daily midpoint.
The 7.2 mark has long been seen as a decisive point for China’s central bank. Though the USD/CNY pair has spiked above this level multiple times since 2022, it has never maintained a foothold.
This change signals a potential managed depreciation strategy for the yuan, assisting in keeping Chinese exports competitively priced and countering the adverse effects of Trump’s tariffs.
Capital Flight to Bitcoin?
This managed yuan depreciation might instigate capital flight from China, potentially funneled into cryptocurrencies, as suggested by analysts. Markus Thielen, founder of 10x Research, indicated,
“The U.S. is now applying full-scale economic pressure on China, which may compel a response with quantitative easing and currency devaluation. If so—and if China allows capital flight—Bitcoin could skyrocket, reminiscent of 2015.”
The Chinese central bank significantly devalued the yuan by 1.9% on August 11, 2015, marking the largest single-day depreciation in over two decades, which created turmoil in international financial markets. Following an initial fall of over 20% in Bitcoin, it then rebounded almost 60% in the ensuing four months.
In alignment with this viewpoint, Ben Zhou, CEO and founder of Bybit, remarked on social media that yuan depreciation typically signals good news for bitcoin.
“China will attempt to lower the RMB to respond to tariffs; historically, whenever the RMB drops, a significant amount of Chinese capital shifts to BTC, which is bullish for BTC,” Zhou stated.
Regulatory Challenges
While historical data often suggests a positive response from BTC to yuan depreciation, it is essential to note that China’s stance has hardened against cryptocurrencies, citing stability risks and imposing stringent regulations. A recent regulation requires banks to meticulously track and report suspicious international transactions, including crypto-related ones.
Local traders could face significant difficulties diversifying into bitcoin and other digital assets amid a sustained yuan depreciation. Thielen added,
“Since August 2024, the Supreme People’s Court has greatly amplified the legal risks associated with using cryptocurrencies in money laundering cases, which could extend to capital flight situations. This poses a substantial deterrent regardless of increasing economic uncertainty.”
Discover more articles and updates to navigate the evolving landscape of cryptocurrency.
