will China trigger the next bullrun?

While the price of Bitcoin (BTC) is stagnating and its volatility over the past few months is lower than the main stock market indices, China could well participate in the rise in the price of Bitcoin in the coming months. Explanations.

China and Bitcoin, I love you too

The history between bitcoin and China dates back to the fall of the Mt.Gox platform in early 2014. Following the hack and shutdown of the largest cryptocurrency exchange led by Mark Karpelès, most BTC trading volume shifted to Chinese platforms: Huobi, BTC China and Okcoin.

Other platforms then emerged such as BitMEX, founded in Hong Kong, or Bitfinex. The latter, through its link with Tether (iFinex), allowed the Chinese to transfer dollars (with the stablecoin USDT) around the world without involving banks.

Chinese companies have been heavily involved in the development of products and services around Bitcoin and cryptocurrencies, whether in trading (margin trading, derivatives, futures) or in mining.

While China had all the cards in hand to be a key player in the cryptocurrency sector, the authorities decided to restrict their access and use:

  1. Ban on launching and participating in ICOs in 2017;
  2. Official ban on mining in 2021, although this does not mean that there are no more miners in China;
  3. New official statement regarding the banning of cryptocurrencies in 2021.

Were these decisions driven by fear of capital flight from wealthy Chinese to Bitcoin and cryptocurrencies? as was the case from 2015 due to the devaluation of the yuan?

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Wealthy Chinese ready for exile?

Xi Jinping, recently renewed at the head of the Chinese Communist Party, could tax the richest more in the name of “common prosperity” and nationalize more economic sectors.

It is no coincidence that many wealthy Chinese families are looking to open accounts and take up residence abroadand it is Singapore that benefits.
Thus, it could be that faced with the risk of having their bank transfers blocked, or the difficulty of transporting gold from one country to another, Bitcoin and cryptocurrencies are the ideal instrument as it was in 2015.

The fact that Hong Kong plans to legalize cryptocurrency trading for individuals could be the solution to keeping these wealthy Chinese in China’s economic and territorial space.

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Dollars not knowing what to do with them

China is the country that holds the most US Treasuries behind Japan. Indeed, each month, China earns billions of dollars due to a surplus of exports compared to their imports and these dollars are transformed into American Treasury bonds.

american treasury bonds held china

US Treasuries held by China in billions of dollars

This worries China, as its assets may be frozen by the United States as may have been the case for Russia following the attack on Ukraine. Yu Yongding, economist and former advisor to the Chinese Communist Party said:

“We never expected the United States to ever freeze a country’s currency reserves. This maneuver completely destroyed our confidence in the international monetary system. Now the question is, if the US stops playing by the rules of the game, what can China do to ensure the safety of its foreign assets? We don’t have an answer yet, but we need to think about it very seriously. »

China has also stopped buying US Treasury bonds, but what will their dollars be used for? We have seen that, like Japan, China massively sells dollars to support its own currency. This is also what stopped the rise of the dollar against other currencies.

As we saw in a previous article, Hong Kong plans to reopen to cryptocurrencies. After giving way to Singapore as Asia’s leading financial center, Hong Kong is following the opposite path of its competitor, which plans to further regulate cryptos.

This legalization could meet several objectives:

  • make Hong Kong attractive again as a financial centre;
  • attract new talents, and as we know, there are many of them in the cryptocurrency industry;
  • allow the development of local cryptocurrency services and exchanges to sell their dollars more easily and discreetly against Bitcoin (in particular without destabilizing their financial system).

It wouldn’t be surprising to see China buying Bitcoin and other cryptocurrencies to diversify its assets. Additionally, Bitcoin’s upside potential is greater than that of the dollar, and the Bitcoin network is not controlled by a central entity. However, this could be done through Hong Kong so as not to encourage its citizens to do the same with their yuan and destabilize their financial system.

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Source: Arthur Hayes, NY Times

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