- Data compiled by Bloomberg reveal a worrying trend for China, as capital outflows totaled $49 billion in August.
- Thielen argues that despite China’s strict capital controls, Bitcoin, like cryptocurrencies, may be one of the few viable options for transferring capital abroad.
- Engel notes that the last notable example of Bitcoin being used for capital flight was in 2017-2018, when “junkets” facilitated underground banking for wealthy Chinese individuals.
Capital outflows in China reached $49 billion in August; Will the weakness in the Chinese Yuan create an advantage for Bitcoin?
Weakness in the Chinese Yuan Could Boost Bitcoin Interest
Recent data compiled by Bloomberg reveals a concerning trend for China as capital outflows reached $49 billion in August. This represents the highest monthly capital outflow since December 2015, putting additional pressure on the Chinese yuan. Among the reasons analysts attribute to this phenomenon are China’s weaker post-COVID-19 growth momentum and weak profit margins among local companies.
Markus Thielen, the head of research and strategy at Matrixport, suggests that Chinese investors may turn to Bitcoin as a hedge against the economic weakness in the domestic market. A depreciating yuan, slow growth, and weak profit margins among local companies could lead investors to seek opportunities outside of China.
Thielen argues that, despite China’s strict capital controls, cryptocurrencies like Bitcoin might be one of the few viable options for capital flight abroad. Similarly, Arthur Hayes, co-founder of BitMEX, implied that some of China’s capital may eventually flow into Bitcoin in hopes of reaching it after paying off assets like gold and overseas dollar debt.
Towards the end of 2016, reports emerged that Chinese investors were using Bitcoin as a means to move capital out of the country. At that time, trading volumes suggested a potential connection between the value of the Chinese yuan and the price of Bitcoin, with Bitcoin reaching its peak in late 2017.
However, crypto analysts like Edward Engel from Singular Research caution against drawing direct parallels with the past. Engel highlights that the landscape has changed significantly, and the Chinese government has taken steps to close previous loopholes.
Engel points out that the last significant example of Bitcoin being used for capital flight was during 2017-2018 when “junkets” facilitated underground banking for wealthy Chinese individuals. These entities helped move substantial amounts of money abroad, but Chinese authorities have since imposed restrictions on such operations.
The Complex Relationship Between Bitcoin and Capital Flight
In addition to the attractiveness of Bitcoin as a tool for capital flight, it’s essential to recognize the multifaceted nature of this relationship. China’s commitment to restricting capital outflows involves stringent measures, including restrictions on foreign currency purchases, increased scrutiny of overseas investments, and limitations on cryptocurrency trading.
This evolving regulatory environment has made it increasingly challenging for Chinese investors to use Bitcoin as a primary tool for capital flight. Nevertheless, the cryptocurrency market remains relatively resilient and adaptable, making it an ongoing source of interest for individuals and organizations seeking alternatives to traditional financial systems.
The current situation in China raises interesting questions about the potential role of cryptocurrencies like Bitcoin as a hedge against economic uncertainties, not only in China but also in other regions facing similar challenges in capital flight scenarios. The decentralization and borderless nature of cryptocurrencies make them an attractive option for individuals and organizations looking to diversify their assets and protect their wealth.
