Bitcoin Bull Race May Be Accelerated by Chinese Market Collapse: Crypto Observer

The new year has offered no respite for Chinese assets, which continue to fall amid a collapse that could further fuel Bitcoin’s (BTC) ongoing uptrend.

The Chinese yuan (CNY) fell to 7.32 to the US dollar early Tuesday, hitting the lowest level since September 2023, according to data source TradingView. The Chinese unit fell 0.4% this month, extending a three-month losing trend despite attempts by the People’s Bank of China to calm investor nerves over impending US tariffs under the administration of President-elect Donald Trump.

On Monday, the CSI 300, a leading index for mainland China’s stock exchanges, fell to its lowest level since September. The ChiNEXT index, a so-called risk gauge that tracks the performance of innovative, high-growth small and medium-sized companies in China, has also fallen 8% since December 31, according to charting platform TradingView.

Finally, the yield on 10-year Chinese government bonds fell to 1.6%, a notable decline of 100 basis points compared to last year. This continued 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 lead to capital flight from the country, which could lead to increased demand for alternative investments such as Bitcoin, according to LondonCryptoClub.

“China appears to be letting its currency decline and is no longer defending it, allowing the currency peg to creep in if not outright devaluation. This will accelerate capital outflows from China, which we are seeing with Chinese stocks under pressure. Bitcoin will be an alternative “It’s a destination for some of these flows, especially with capital controls in place, which makes it difficult to get capital out of China via traditional channels,” the LondonCryptoClub founders told CoinDesk.

“When China devalued the currency in 2015, Bitcoin immediately traded three times higher,” the founders added.

Note that the People’s Bank of China (PBOC) only relied on daily reform and other liquidity measures to halt the yuan’s decline rather than direct intervention, which could become a headwind for cryptocurrencies.

on monday, People’s Bank of China Group The daily reference rate was stronger than the 7.20 per US dollar that is widely watched in an attempt to mitigate the bearish Chinese yuan outlook. The daily fix has been the central bank’s preferred tool in managing market expectations, and has held firm at a stronger 7.20 per US dollar since Trump won the US election in early November.

Meanwhile, the People’s Bank of China has also taken steps to tighten liquidity in the offshore market (Hong Kong) to support the yuan, as evidenced by a significant rise in the overnight offshore yuan interbank rate in Hong Kong which rose to 8.1%, the highest level since June. 2021.

However, Bitcoin bulls need to Keep an eye out for Possible direct intervention includes selling dollars to support the yuan, as this may strengthen the dollar index, and limit the upside in dollar-denominated assets such as Bitcoin.

When the People’s Bank of China sells dollars to support the yuan, it simultaneously buys the US currency in exchange for other currencies to keep the ratio of dollars in reserves stable. Thus, this process leads to fiscal tightening through the foreign exchange channel.

The dollar index has already risen from around 100 to 108 in just over three months, largely tracking the rise in Treasury yields. More power could dampen investors’ appetite for riskier assets.