April 26, 2024
By Sharan Kaur Phillora
Recent analysis highlights a possible surge in Bitcoin’s price, influenced by a significant $75 billion foreign exchange (FX) outflow from China. Historically, such outflows have preceded major rallies in Bitcoin’s value, suggesting a bullish trend in the cryptocurrency market.
Here’s what we know:
In October last year, China recorded a dramatic $75 billion in FX outflows, marking the highest monthly outflow since the 2015 currency devaluation, sparking concerns over the nation’s economic stability and its global market impact.
Experts suggest these outflows might lead to further depreciation of the Chinese currency, pushing more capital into digital assets like Bitcoin. During this period, Bitcoin traded at approximately $30,000 and subsequently witnessed an over 100% increase in the next four months, underscoring its attractiveness as an alternative asset amidst stringent Chinese capital controls.
While some analysts believe the rally was spurred by the introduction of Bitcoin ETFs in January, others point to the significant role of capital flight from China in driving Bitcoin’s price movements. Despite reports of stable Chinese FX reserves, peaking at a near four-year high of $3.246 trillion, a deeper examination into FX flows—including onshore spot transactions and cross-border RMB flows—shows a sharp escalation in net outflows from China.
March alone recorded $39 billion in net outflows, the quickest rate since last September. This indicates that Chinese investors are increasingly turning to alternative assets amid economic uncertainties and regulatory pressures. With the U.S. dollar strengthening broadly and heightened volatility in the FX market, Bitcoin is becoming a preferred hedge against potential currency devaluation and stringent capital controls.
As China continues efforts to boost its export competitiveness, proponents of currency devaluation might find support, potentially mirroring the circumstances that led up to the 2015 FX devaluation. With these dynamics at play, the stage is set for a possible Bitcoin rally, positioning the cryptocurrency as a critical financial refuge in times of economic fluctuation.
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.
