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China looks to halt Yuan’s fall, tumbles Bitcoin instead

Ironically, for a country that has banned Bitcoin and other cryptocurrencies, China remains to be the highest contributor to Bitcoin in terms of volume. With a total contribution of whooping 96% in 2016, China is a major influencer when it comes to Bitcoin prices. Be it the surprise bull run mid – 2016 or the short term fall in prices or the big push towards the end of the year, China has always had a major hand in it. Coming strongly into the New Year, the Bitcoin Bull Run came to a halt owing to Chinese policies. 5th of January saw Bitcoin dropping from near all-time high to under $950 in a short span of time. Let’s dive deep into how this happened and what might be the fate of Bitcoin from here:

Capital controls kicking in?


The Chinese authorities have closely monitored Bitcoin in 2016 to validate the boost patterns. After thorough analysis, they have concluded that Bitcoin is used to launder money out of the country. China as such has strong capital controls and conversion of local currency into foreign currency is well accounted. Owing to the peer to peer nature of Bitcoin, it has become one of the viable routes to launder money out of the country. Hence Chinese authorities have employed strict capital controls over Bitcoin. These measures require identification and completion of detailed forms to convert yuan into foreign currency. These measures may now be starting to work as the currency becomes scarce offshore.

Halting the Yuan’s fall:


Chinese Yuan increased by 1% following a weak dollar as interest rates rose by 96% in Honk Kong on Thursday. While China has halted the Yuan devaluation temporarily after being included in the SDR basket, they still have some devaluation left to do. Market analysts are betting on a decline of yuan this year to 7.15 from the current 6.8125 but this would trigger a hostile situation with USA. Hence to hold off on the same order China might order their state-owned companies to sell their foreign reserves.

Future Dynamics with US and effect on Bitcoin:


Trump has labelled China as a currency manipulator and aims to negotiate a “fair and free” trade arrangement with China. To escape the falling value of their currency, Chinese citizens started investing in Bitcoin, changing the path of the capital. To stop further devaluation, China is looking to sell foreign reserves. But as this can’t be executed completely owing to US policy intervention, further devaluation of Yuan is likely and definitely set on the cards. Hence Bitcoin will continue the climb once the Yuan dynamics strike a balance.

Bitcoin Price Analysis: Could rising interest rates threaten the uptrend?

After riding high on fundamentals during September, Bitcoin has had a positive start for October. The price remained fairly over $600 in September with the fag end of the month testing heavy support around $595. After the rebound from $595, the price has now rallied to over $610 over the weekend. While the setup looks bullish, let’s look into the price analysis for October:

Fundamental Key Points:

The adoption of the cryptocurrency and its underlying technology has always been the fundamental positive for the Bitcoin ecosystem. Here are few highlights of the past month fundamentals that might continue to have a prolonged effect on the prices:

  • Blockchain Firms Axoni and R3CEV’s Data Management Trial for 6 Major Financial Institutions
  • Winklevoss Bros’ introduction of daily Bitcoin auctions and Gemini’s expansion to Hong Kong and Singapore
  • US Congress calling for a legislation to regulate Bitcoin and Blockchain Technology
  • Deloitte coming into the Bitcoin scene with the launch of a Bitcoin ATM
  • UK to amend laws to accommodate Digital Currency Exchanges

Any continued activity pertaining to the above key points is sure to have an impact on the prices. Adding to the above, from a macro perspective, rise in interest rates might boost the prices of Bitcoin. Nevertheless it would also depend on the timing of the news release and the trading prices at that point.

Technical Analysis:

Long Term Trades:

The Long Term prices have been in an uptrend from the start of this year, with the 200 SMA (in Yellow) getting breached only once during this duration. The $595 level has been a good buy zone and can slowly become the change point for a long term trend. With previous swing lows at $560 as a stop, one can enter into a long term trade at $595. The previous swing high at $778.71 can be a target.

If the market is unable to breach the 100 SMA on the upside at $620, the market can turn bearish. It can crash back all the way to the 200 SMA breaking the support at $560. For this to happen there has to be a strong fundamental factor driving the prices down.

Short Term Trades:

On a daily chart, the Bollinger bands are narrowed out and expanding indicating an impending break out. Given the technical setup, a break out on the bullish side looks more feasible. There is a zone of heavy support around $600, with the middle Bolligner band, 9,13 and 34 SMAs supporting the prices. Good short term trades would be to take positions targeting the 100 SMA.

To get apt entry positions, let’s look into lower time frame:

On shorter time frame (4 Hrs), the setup is trending with parallel Bollinger bands indicating the trend. 34 SMA has been the line of constant support after the test of the support zone. Entering into short term trades at 34 SMA targeting higher Bollinger band can turn out to be profitable. With the setup being bullish, short term trades from the bearish side might be a risky affair.

While taking long term positions, factoring in the news pertaining to US movement for legislation and Fed announcements would be advisable.