Capital outflows from China may increasingly flow into alternative assets like Bitcoin, as the country faces an ongoing economic downturn.
As the new year unfolds, Chinese assets continue their downward trajectory, fueling speculation that the Bitcoin (BTC) bull run could gain even more momentum.
On Tuesday, the Chinese yuan (CNY) hit 7.32 per U.S. dollar, its lowest value since September 2023, according to data from TradingView. The yuan has dropped by 0.4% so far this month, extending its three-month losing streak despite efforts from the People’s Bank of China (PBOC) to stabilize investor confidence amid concerns over potential U.S. tariffs under President-elect Donald Trump’s administration.
On Monday, the CSI 300, which tracks blue-chip stocks on mainland China’s exchanges, fell to its lowest point since September. Similarly, the ChiNEXT Index, which tracks the performance of China’s innovative small and medium-sized enterprises (SMEs), has lost 8% since December 31, according to TradingView.
The yield on China’s 10-year government bonds has also dropped to 1.6%, marking a significant decline of 100 basis points from the previous year. This drop contrasts with rising yields in major economies like the U.S., signaling growing concerns over persistent deflation.
These economic pressures are likely to trigger capital flight from China, potentially boosting the demand for alternative assets such as Bitcoin, according to experts at LondonCryptoClub.
“China seems to be allowing its currency to slide without defending it, which could lead to further devaluation. This will likely accelerate capital outflows, with Chinese stocks under pressure. Bitcoin could be a key destination for some of these funds, especially given the country’s capital controls, which make it difficult to move money out through traditional channels,” the founders of LondonCryptoClub told CoinDesk. “When China devalued its currency in 2015, Bitcoin’s price surged more than three times.”
The PBOC has largely relied on its daily reference rate and liquidity measures to manage the yuan’s decline, rather than intervening directly in the market, which could present a challenge for cryptocurrency markets. On Monday, the PBOC set the daily reference rate stronger than the key 7.20 level per USD in an attempt to curb bearish sentiment around the yuan. This reference rate has been the PBOC’s primary tool for managing market expectations since Trump’s victory in November 2016.
The PBOC has also tightened liquidity in the offshore yuan market, with the overnight interbank interest rate in Hong Kong spiking to 8.1%—its highest since June 2021—further illustrating efforts to support the yuan.
However, Bitcoin investors will need to monitor any potential direct intervention from the PBOC, particularly if it involves selling dollars to prop up the yuan. Such moves could lead to an increase in the U.S. dollar index, potentially capping gains in dollar-denominated assets like Bitcoin.
When the PBOC sells U.S. dollars to bolster the yuan, it also buys greenbacks from other currencies to maintain the share of USD in its reserves. This process can tighten financial conditions through the foreign exchange (FX) channel.
The U.S. dollar index has already climbed from around 100 to 108 in just over three months, largely following the rise in Treasury yields. Continued strength in the dollar could dampen investor appetite for riskier assets, including Bitcoin.
