Recent data suggests that Bitcoin’s price could soon surge, driven by significant foreign exchange (FX) outflows from China totaling $75 billion. This surge in outflows has historically come ahead of a big pump in the price of Bitcoin, signaling a potential bullish trend in the crypto market.
Rising FX Outflows from China
Last October, China experienced a staggering $75 billion in FX outflows, the highest monthly outflow since the 2015 currency devaluation. This raised concerns about the country’s economic stability and the impact on global markets. The outflows are believed to potentially cause a further devaluation of China’s currency and more money flowing into digital assets like Bitcoin.
At that time, Bitcoin was trading at around $30,000, and later saw a remarkable surge of over 100% in the following four months, demonstrating its role as a preferred asset for circumventing China’s strict capital controls.
While some attributed Bitcoin’s rally to the launch of Bitcoin ETFs in January, others recognized the significant influence of China’s capital flight on Bitcoin’s price movements.
Chinese FX Reserves Steady
Despite official reports indicating stable Chinese FX reserves nearing a four-year high of $3.246 trillion. Using a comprehensive gauge of FX flows, including onshore spot transactions and cross-border RMB flows, reveals a sharp increase in net outflows from China.
March alone saw a staggering $39 billion in net outflows, the fastest pace since the spike observed in September.
Bitcoin as a Hedge
The surge in outflows is indicative of Chinese investors seeking alternative assets amid economic uncertainties and regulatory pressures. With the broad strengthening of the US dollar and increased volatility in the FX market, Bitcoin has emerged as a preferred hedge against currency devaluation and capital controls.
As China aims to bolster its export competitiveness, currency devaluation advocates could gain traction, similar to the events preceding the 2015 FX devaluation.
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