Demand

China's capital outflows reached $49 billion in August, its highest in nearly eight years. Analysts are debating whether it could be a boon for Bitcoin and crypto.

Bitcoin (BTC) could see “substantial inflows” from China within the next few months, amid a weakening Chinese yuan and one of the country’s biggest capital flights in years. 

“The familiarity of Bitcoin by Chinese investors in times of a weakening domestic economy could see substantial inflows into Bitcoin over the next few months,” said Markus Thielen, head of research and strategy at Matrixport.

Latest official data — compiled by Bloomberg — shows China’s capital outflows hit $49 billion in August, the largest monthly capital outflow since December 2015, potentially spelling more pressure for the Chinese yuan.

China just experienced a capital outflow of $49 billion last month, the largest outflow in more than 7 years pic.twitter.com/X4Or9k3Oiu

— Barchart (@Barchart) September 19, 2023

“The USD/CNY exchange rate is trading at a 17-year high as the U.S. economy is strongly expanding while the Chinese economy appears to have weak growth momentum,” said Thielen.

“The post-COVID-19 consumption rebound underwhelmed, and the authorities have not implemented enough countercyclical measures to support the economy. Chinese companies are suffering from weak margins in the absence of growth. “

Thielen believes continued pressure on the yuan and the “absence of growth” among local companies could see investors searching for opportunities outside of China.

However, considering the country’s strict capital controls, crypto may turn out to be one of the few channels available, he said, arguing:

“Crypto might be one of the only viable options.”

In a Sept. 20 post on X, BitMEX co-founder Arthur Hayes alluded to a similar possibility, suggesting that Chinese capital may already be flowing into gold and paying down U.S. dollar offshore debt. He also shared hopes that some of the capital “find its way” to Bitcoin.

As long as the $JPY weakens, the $CNY must weaken so that Chinese exports remain competitive vs. Japan.

Wherever the Chinese capital is going, it will keep going in SIZE.

I hope some finds its way to Lord Satoshi and $BTC

— Arthur Hayes (@CryptoHayes) September 20, 2023

In fact, such a narrative seemingly played out for Bitcoin in late 2016, with reports that investors in China were increasingly looking to Bitcoin to get capital out of the country.

At the time, the trading volume out of China suggested a possible link between the value of the Chinese yuan to the price of Bitcoin — which eventually peaked around late 2017.

Related: Sky-high interest rates are exactly what the crypto market needs

However, Singular Research’s crypto analyst Edward Engel argues that times have changed and a Chinese capital flight today may not have the same impact on Bitcoin as it did then.

“This is not something I’ve heard,” said Engel in a statement to Cointelegraph. “The last time I heard of something like this was 2017-18 when junkets were using Bitcoin to support underground banks but we all know the CCP plugged those holes a while ago.”

“China’s gotten pretty savvy when it comes to stopping outflows so I’d be surprised if people were using older ways.”

Junkets refer to organizations that helped wealthy Chinese gamblers move substantial sums of money overseas. China has since cracked down heavily on these firms.

Thielen, however, claims there may still be surviving methods for Chinese capital to use crypto, such as using domestic electricity to mine crypto or using OTC traders to buy Tether (USDT) via Tron to send crypto internationally — seemingly in the face of restrictions.

The price of Bitcoin has continued to hover between $25,000 and $27,000 since mid-August. It is currently trading at $26,621, according to Cointelegraph Markets Pro.

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