Chinese investors are buying bitcoin as the yuan continues to fall since bitcoin allows them to store funds outside of China, according to The Wall Street Journal. The activity has renewed fears of government enforcement action against bitcoin, which happened when prices soared in 2013.
Bitcoin trading reached 47 million bitcoins last week, the highest-ever level based on data since 2011.
China, the world’s second-largest economy, commands most of the bitcoin buying activity, with trading on three Chinese bitcoin exchanges accounting for 98% of global volume in the past month.
Bitcoin prices and trading volumes have increased as the Chinese yuan has weakened. The yuan has fallen 1.4% against the U.S. dollar since Sept. 30, taking some Chinese investors by surprise, causing them to seek more stable stores of value and sending money offshore to circumvent China’s capital controls.
Bobby Lee, chief executive of Chinese bitcoin exchange BTCC, said bitcoin is seen as a more stable option.
Chinese investors can buy bitcoin on a local exchange, then move it to an exchange overseas. The investor can then sell the bitcoin for non-Chinese currency.
It is uncertain to what extent Chinese investors are using this approach. Even if they are, Lee suspected it is only a small part of overall capital flow out of China.
Goldman Sachs estimated capital exiting mainland China reached $78 billion in September. Such movement would overwhelm the bitcoin market, as its global market value is only $11 billion.
When bitcoin prices first soared in China in 2013, the nation’s central bank prohibited banks from engaging in bitcoin-related businesses. After prices fell, the government loosened enforcement of the rules.
Concerns that Chinese officials could refocus on the bitcoin market have forced prices to fall 5.6% since Wednesday, market participants said.
The recent activity indicates China’s influence can have varying impacts on bitcoin’s price.
CCN.com reported last month that bitcoin’s price was rising with the continued fall of the Chinese yuan.
China’s economy has stagnated in recent years and the country’s central bank has repeatedly slashed and lowered interest rates in attempts to spur a stuttering economy. At this time last year, China’s growth slipped below the 7 percent growth mandate set by the government. The decline was the weakest in a quarter since 2009, when the world was in the midst of the financial crisis.
Image from Shutterstock. Chart from Bloomberg.
Last modified: March 4, 2021 4:52 PM