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Defying fundamentals: Yuan drops but Bitcoin remains stable, Ethereum to benefit?

Start of the year and the behavior of Bitcoin has been surprising people around the Globe. A sudden halt to the trend, as the price reached the peak and now most unexpectedly the price is unaffected when Yuan is dropping. ‘Bitcoin Trading-101’ would any day tell you to keep an eye on China and Yuan for hints about price movements. This held well until the start of New Year but suddenly has become a futile pro tip. Institutional Investors and Intraday traders are all baffled by this anamoly. Let’s dive deep into understanding how exactly Bitcoin dynamics have changed w.r.t China:

China’s rumored desperate attempt and failure:


While the Bitcoin price was soaring, US dollar was at a three week low strengthening Yuan. China has plans to devalue Yuan further to 7.15% from 6.8125% this year to maintain good returns on exports. But with Yuan strengthening organically, rumors were floating in the market that China might order their state-owned companies to sell their foreign reserves. However while these might be just rumors effecting the market, Yuan devalued further and this time Bitcoin prices have remained stable.

Strong Capital controls taking the steering?


The Chinese authorities have closely monitored Bitcoin in 2016 to control and curb corruption that is hampering their economy. After gathering sufficient information, they have concluded that investors are using Bitcoin to send the money out of the country. China as such has strong capital controls and conversion of local currency into foreign currency is well regulated. However Bitcoin having a peer to peer nature and doesn’t get accounted in these regulations. Hence Chinese authorities have employed strict capital controls over Bitcoin. These measures require identification and completion of detailed forms to convert yuan into Bitcoin. With Yuan’s fall not boosting Bitcoin price, one might suspect that these controls are in place and functional.

Who will benefit from this?

If China slowly fades out from Bitcoin scenario as major driver of price and volumes, next in line would be India. With a large population that recently underwent demonetization and has been adopting Bitcoin and digital payments, India can be the next big player in Bitcoin. The budding digital currencies and blockchain startup scenario in India is surely promising in this prospect.


While Bitcoin price has remained stable in between $900-$910, Ethereum is experiencing an unusual price surge with Yuan devaluation. If it’s the case where the Chinese are now moving funds to Ethereum then it’s only a matter of time before the Chinese government realizes it. This would put all cryptocurrencies in a position to endure complete regulation in China.


Investors Rush for the Exits as China Moves to Halt the Rally in Bitcoin

Bitcoin recorded a surprising crash on Thursday January 5 to halt the expectations that the cryptocurrency will continue its rally to surpass its previous all-time high. Bitcoin had already crossed the $1,100 threshold and it was nearing the $1,200 threshold before it lost its footing. Bitcoin almost dropped to $800 on January 7 and it currently trades around $908 as at 9:27AM EST today.

Many people have tried to find out the reasons for the short-lived rally in Bitcoin prices. Interestingly, the prevailing opinion in the market submits that the People’s Bank of China is behind the unexpected crash in the price of Bitcoin. This piece seeks to examine how China unwittingly orchestrated the crash in Bitcoin prices.

Here’s how China ended Bitcoin’s rally

Bitcoin is already taking up position as a cryptocurrency that could displace troubled fiat currencies and end government interventionist monetary policies. Last week, we wrote on how Bitcoin is already building momentum to displace the Bolivar in Venezuela.  Well, the People’s Bank of China made a preemptive strike to ensure that thoughts to use Bitcoin in place of the Chinese Yuan don’t begin to take root in China.

The PBC issued two notices from its Beijing and Shanghai branches emphasizing its position on Bitcoin’s place in the economy. The PBC noted that it considers Bitcoin as a commodity and not a currency and that investors should only trade Bitcoin with the understanding that it carries investment risks. The PBC also requested meetings with Bitcoin exchanges to encourage “self-examination” in ensuring that exchanges stay within the ambits of regulations and that they are managing risks properly.

The more troubling development that caused the price of Bitcoin to tank is the revelation that China’s foreign exchange regulator SAFE was investigating the use of Bitcoin in avoiding capital controls on China. Beijing has placed strict capital controls on the inflow of funds in and out of China but speculators believe that China’s wealthiest are using Bitcoin to bypass those capital controls.

In fact, a decent part of the rally in Bitcoin was fueled by the rumors of an increase in Bitcoin adoption amidst China’s wealthiest. In essence, moves to investigate the use of Bitcoin to evade capital controls could be a precursor to a clampdown on the use of Bitcoin in China. A clampdown on Bitcoin use in China could result in losses for investors; hence, many people have started unloading their Bitcoin holdings.

OKCoins thinks the Bitcoin should be regulated in China

Leading Bitcoin exchanges in China are supporting the government’s plan to push more regulations through the Bitcoin industry in the country. OKCoin is the second-largest Bitcoin exchange for CNY Bitcoin-trading in China – BTCC leads OKCoin in 7–day-volumes. OKCoin revealed that it had had dialogue with the PBC on its plan introduce a third-party platform. The firm however notes that the PBC is yet to make a decision on creating such a platform.

Nonetheless, OKCoin CEO, Star Xu observes that regulating the Bitcoin industry could benefit all stakeholders and that the panic selloff in Bitcoin is unwarranted. In his words,

“The industry can benefit from balanced, risk-based regulation and oversight and we look forward to further constructive discussions with the regulators and industry participants.”