China's Tariff Response May Drive 2% Yuan Devaluation, Boost Bitcoin
1min read China’s response to the United States' imposition of tariffs could lead to significant capital flight into cryptocurrencies, according to Arthur Hayes, the co-founder of BitMEX. Hayes suggested that if the People’s Bank of China devalues the yuan, it could create a narrative where Chinese capital flows into Bitcoin, mirroring past events in 2013 and 2015.
Ben Zhou, the co-founder and CEO of Bybit, echoed this sentiment, stating that historically, whenever the yuan drops, a substantial amount of Chinese capital flows into Bitcoin, which is bullish for the cryptocurrency.
The yuan has been weakening against the US dollar since 2022. In August 2015, the yuan was devalued by nearly 2% against the US dollar, marking the largest single-day drop in decades. This event saw increased interest in Bitcoin, although the direct causative relationship is debated. Similarly, in August 2019, when the yuan fell below the symbolic 7:1 ratio against the USD, Bitcoin also experienced price increases. Some analysts suggested that Chinese investors were using Bitcoin as a hedge during this period.
Wealthy Chinese citizens have historically used cryptocurrencies to preserve their wealth, move it beyond government reach, and avoid capital controls and restrictions within the country. Currency devaluations also damage trust in central banks and government financial management, pushing people toward decentralized alternatives like Bitcoin.
In response to the US president's vow to ratchet up additional tariffs, China stated it “will fight to the end” and will take countermeasures to defend its own interests. The Chinese government's actions, including the devaluation of the Yuan and the imposition of export restrictions, are aimed at stabilizing the economy in the face of external pressures. However, these measures also carry risks, as they could exacerbate capital outflows and further destabilize the financial system.
The potential for capital flight into cryptocurrencies adds another layer of complexity to the situation, as it introduces a new dynamic into the global financial landscape. This scenario, if it materializes, could have significant implications for the global cryptocurrency market, as it would likely lead to increased demand and potentially higher prices for digital assets.
