Booming Chinese Capital Outflows May Result In 2019 Crypto Bull Run

Journalist:
January 16, 2019

Increasing rates of Chinese capital outflows over the past few months are presenting the cryptocurrency space with an unprecedented opportunity as citizens of one of the world’s most strictly regulated jurisdictions find ever more ingenious ways to get around financial movement restrictions.

China’s Capital Restriction Problem

In theory, China has perhaps the most stringent capital restrictions of any major world economy. Regulations state that individuals are not allowed to move more than $50,000 out of the country and companies are only allowed to exchange yuan for other currencies with approval from authorities. This is a rule that dates back to the era when Chinese industrialization was being developed under the principle of national self-reliance and conservation of scarce foreign reserves. These days, critics claim that such capital restrictions serve no purpose other than to coerce wealthy Chinese nationals to toe the communist party line under threat of losing their assets forcibly domiciled in the country.

In practice, even the Chinese government has a limit to how effectively or extensively it can enforce such regulations. Over the past 10  years, a vast number of Chinese elites have found ways to move their money abroad, with their extensive real estate holdings even becoming a subject of political controversy in Vancouver and London due to perceived inflationary pressure on local housing markets. This is not to mention a significant number of well-funded Swiss bank accounts held by Chinese nationals.

Opportunity For Crypto

While the central government with its tremendous surveillance capacity is not unaware of the various creative ways Chinese nationals use to export capital beyond the $50,000 limit, it is only likely to carry out a thorough crackdown in the highly unlikely event that foreign reserves become depleted. With over $1 trillion in American bonds on its books, such a scenario is extremely remote, and this creates a juicy opening for cryptocurrencies.

Chinese trade data from last month shows that capital outflows increased significantly. The last time a surge of this level happened, bitcoin embarked on a prolonged bull run starting from $200 and eventually culminating at its $20,000 all-time high as Chinese traders and exporters used cryptocurrency to move large amounts of money out of the country.

Going by last month’s trade data as well as the current rise of the Yuan, it is likely that over the next few months, Chinese money will make its way into crypto, which may herald the start of another Bitcoin bull run.

Last modified (UTC): January 16, 2019 14:03

Tags: BitcoinChina
David Hundeyin @DavidHundeyin

I am a busy Nigerian writer, journalist and writer with an interest in tech and finance. When I'm not contributing to CCN and traveling around Africa, you can catch me contributing to CNN Africa, or in the writers room at 'The Other News', Nigeria's weekly answer to 'The Daily Show' with nearly 2 million viewers. My work on 'The Other News' was featured in the New Yorker Magazine, and that was then cited in the Washington Post so I'm not sure that counts as a feature but I'll definitely mention it too! I have been nominated by the US State Department to take part in the 2019 Edward R. Murrow Program for journalists under the International Visitors Leadership Program. I also like hamsters. You can reach me on Twitter at _David_Hundeyin