Analysts are suggesting that the recent depreciation of China’s yuan could trigger capital outflows into Bitcoin (BTC), similar to patterns seen during previous periods of currency weakness.
On Tuesday, China’s central bank, the People’s Bank of China (PBOC), allowed the yuan (CNY) to weaken beyond the critical 7.2 level against the U.S. dollar. This move is seen as a response to President Donald Trump’s aggressive tariff policies.
The PBOC set the daily reference rate for the yuan at 7.2038 per dollar, marking the weakest fix since September. Unlike freely traded currencies like the U.S. dollar or euro, the yuan is not fully floating. The PBOC limits daily fluctuations to a 2% range on either side of its daily fix, which is announced at 9:15 a.m. Beijing time.
For years, the 7.2 mark has been viewed as a key psychological level for China’s central bank. Although the yuan has breached this threshold several times since 2022, it has not remained above it for any significant period—until now. By setting the reference rate above 7.2, the PBOC is signaling a managed depreciation of the currency, which could help offset the effects of tariffs by making Chinese exports cheaper and more competitive on the global market.
Capital Flight to Bitcoin?
This controlled depreciation could also lead to capital flight from China, with analysts suggesting that much of that capital may flow into cryptocurrencies, particularly Bitcoin.
Markus Thielen, founder of 10x Research, speculated in a note to clients that the U.S. government’s increasing economic pressure on China could force the country into more aggressive measures such as quantitative easing and further devaluation of the yuan. If China were to allow capital to flow out of the country, Bitcoin could benefit, much like it did in 2015.
In August 2015, the PBOC devalued the yuan by 1.9%, marking the largest single-day depreciation in over two decades. The move caused immediate turbulence in global markets, with Bitcoin initially falling alongside U.S. stocks. However, within a few months, Bitcoin surged nearly 60%, recovering swiftly and making significant gains.
Ben Zhou, CEO of the cryptocurrency exchange Bybit, echoed Thielen’s view, suggesting that the depreciation of the yuan typically prompts capital flows into Bitcoin.
“Whenever the RMB drops, Chinese capital tends to flow into BTC, which is bullish for Bitcoin,” Zhou commented on X.
Regulatory Challenges Ahead
While the historical relationship between yuan depreciation and Bitcoin price surges is evident, analysts caution that regulatory hurdles in China could dampen the potential for capital flight into cryptocurrencies.
In recent years, China has taken a hard stance against cryptocurrency trading, citing concerns over financial stability. Earlier this year, the country introduced regulations that require banks to monitor and report suspicious international transactions, including those involving cryptocurrencies. Any trades deemed risky could result in financial penalties or even blacklisting of the trader.
Additionally, China’s Supreme People’s Court has increased the legal risks for individuals using cryptocurrencies in activities such as money laundering, and these measures could extend to capital flight cases. This regulatory climate creates significant barriers for local traders seeking to diversify into Bitcoin or other digital assets, even in the face of rising economic uncertainty.
Thielen pointed out that the harsh regulatory environment would present a major deterrent to anyone trying to move capital into cryptocurrencies, despite the economic pressures that could arise from yuan depreciation.
“While the yuan’s depreciation could spur interest in Bitcoin, the increased legal risks associated with using cryptocurrencies in China—especially with regards to capital flight—pose a serious challenge,” Thielen noted.
