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FxWirePro: Could you envisage on Chinese capital outflow through Bitcoin amid Yuan depreciation?

Ever since CNY devaluation in Aug 2015, the spot rally received help from a high-side USDCNY fixing last year that propelled USDCNH to new YTD highs beyond 7 and carried the rest of the Asian bloc with it. The hawkish tone by the US central bank hints on the prospects of more Fed hikes in 2017 and a rise in capital outflows will drive further CNY depreciation.

But by buying bitcoin onshore, selling it offshore for another currency and then moving the money to a bank account, Chinese individuals can take cash out of the country. The government has been stepping up requirements for citizens converting their yuan, which is already subject to a quota and people familiar with the matter told Bloomberg News authorities are preparing contingency plans to curb outflows.

“Under regulations on cross-border flows, the appeal of using bitcoin to obtain foreign exchange and take capital out of the country will increase, especially for funds that may have been used in illegal operations such as money laundering,” said Qiu Difan, a Shanghai-based economist at SWS Research Co., a unit of Shenwan Hongyuan Group Co. “Regulators have always been passive about bitcoin. Tighter regulation is inevitable going forward.”

Officials from the PBoC cooperatively with the Shanghai’s Financial Office met with the head of BTC China following unusual price fluctuations and to safeguard against risks and maintain financial stability, the Chinese authorities wanted to understand the operation of the trading exchange, sources reports.

Bitcoin has spiked since early 2015 as Chinese buyers, who make up the majority of trading, turned to alternative assets to hedge against the weakening yuan and take cash out of the nation. But with officials tightening capital controls, there’s increased speculation that the digital asset will be the next target - even though the total value of bitcoins of around $16 billion is minuscule compared with most mainstream asset classes in the nation.

Some believed that due to bitcoin’s relatively small size as well as china’s recent move to attract blockchain talent they may take a different approach this time, but that appears not to be the case as the fight between the global markets and Chinese policy makers to determine yuan’s value continues.

After a brief period of stability following a crash of almost 4,000 CNY in the recent past ($300), bitcoin accelerated a downwards turn today following the above news.

Even after Thursday’s slump, the cryptocurrency has climbed 2 percent in the new year, extending a rally in 2016 that beat every major currency, stock index and commodity contract. Outside China, India and Venezuela’s ban on some bank bills and uncertainty over political shocks such as Donald Trump’s election and Brexit also boosted demand for eight-year-old bitcoin, the supply of which is also curbed by its program.

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July 26 18:00 UTC Released

USFed Funds Target Rate

Actual

1.00-1.25 %

Forecast

1.125 %

Previous

1.125 %

July 26 15:30 UTC Released

BRForeign Exchange Flows*

Actual

-2.885 bln

Forecast

Previous

-2.949 bln

July 26 23:00 UTC 2929m

KRNew Home Sales-Units*

Actual

Forecast

2.7 mln

Previous

2.9 mln

July 26 23:00 UTC 2929m

EZGDP Growth QQ*

Actual

Forecast

0.6 %

Previous

1.1 %

July 26 23:00 UTC 2929m

EZGDP Growth YY*

Actual

Forecast

2.7 %

Previous

2.9 %

July 26 23:00 UTC 2929m

KRGDP Growth QQ*

Actual

Forecast

0.6 %

Previous

1.1 %

July 26 23:50 UTC 7979m

JPForeign Invest JP Stock

Actual

Forecast

Previous

341.0 bln JPY

July 26 23:50 UTC 7979m

JPForeign Bond Investment

Actual

Forecast

Previous

947.8 bln JPY

July 26 23:50 UTC 7979m

JPForeign Bond Investment

Actual

Forecast

Previous

947.8 bln JPY

July 26 23:50 UTC 7979m

JPForeign Invest JP Stock

Actual

Forecast

Previous

341.0 bln JPY

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