Bitcoin Price Rally: ‘Hot Money in China Has to Go Somewhere’

Chinese Bitcoin exchanges such as Huobi and BTCC have been showing unprecedented volume as the price of bitcoin in China has been roughly $50 USD or higher than most U.S. and European exchanges. The question is: why are the Chinese buying so much of the cryptocurrency, and why now?

Also read: Bitcoin’s Appeal Rises as Chinese Wallet Apps Will Now Check ID

China’s Stock Market Loss is Bitcoin’s Gain

It seems China is buying into Bitcoin at an exponential rate the past few days, sending its value up 16%. So far, the surge has been relentless and is continuing to add to the $8 billion market valuation as May comes to a close.

ChinaIn September of 2015, one bitcoin was trading at $230 USD, and now the spot price has risen $300 USD above that position in less than a year.

As usual, Bitcoin supporters look to China as the currency’s value spikes, and there’s a good reason for this speculation. Bitcoin’s price really started kicking into an uptrend coincidentally at the same time the Chinese stock market was showing signs of turbulence in June of 2015. Within that Summer month, the Shanghai Stock Exchange and the value of A-shares lost a third of their value.

The Chinese government did everything they felt was necessary in order to curb the free fall, but by the end of August, the Shanghai Composite took its biggest dive since 2007.

The Chinese authorities’ solutions were the typical interest rate manipulations and the rise of capital controls. Subsequently, the black market was used by citizens to get money offshore, but alongside this, Bitcoin was being bought by Chinese investors in greater numbers.

As predicted by Zerohedge in September 2015, once Chinese investors, with their $22 trillion USD in deposits, caught a whiff of Bitcoin, it was off to the races.

Surely there are still a lot of people using China’s underground outflow system to move money, but some would rather refrain from using the black market. The value of bitcoin has slowly risen, while these Chinese economic turmoils have been taking place until one BTC was trading over $400 per Bitcoin in November of 2015. But after a few months of relative stability through Q1 of 2016, the price is soaring again.

With this cryptocurrency surge, speculators continue to look to China as the Yuan devalues and the recent trend of stockpiling commodities don’t bode well for the country’s economy. The Wall Street Journal (WSJ) reports Chinese investors are moving money out of typical asset classes and looking for higher-yielding returns elsewhere.

huobi1One speculation is Chinese investors know the coming Bitcoin halving is expected in July of this year. The halving will reduce Bitcoin miner rewards from 25 BTC to 12.5 per block found, putting pressure on the supply side.

Chinese exchanges have seen more customer signups over the past month as the halving approaches. Du Jin, chief marketing officer at Huobi, told the WSJ:  

There’s a lot of hot money in China that has to go somewhere. Huobi has seen a surge of new registrants in the past one month.

Huobi CEO Leon Li recently confirmed this trend in an interview with

“Bitcoin supply is limited, the soon to come production halve is generating reactions in the market, which is reflected in the price variation,” explained Li. “[…] China’s stock market crashed in late April, the performance of futures and bonds were also not good, which pushed investors to seek for other investment products, such as bitcoin.”

Deflationary Bitcoin vs. Printed Paper

ChinaJust before the latest 4-day Bitcoin surge, Zerohedge again predicted the event back in April. Then the day before May 27th, the publication‘s twitter handle said, “CNY will be interesting on Sunday night” and that’s exactly what happened as Chinese Bitcoin buying started picking up momentum. The report, along with many other editorials regarding the subject, are directly pointing at Chinese capital controls and the fear of Yuan devaluation.

Quite a bit of bitcoin purchases and sales happen in China with periodic intervals making up 60-70% of all Bitcoin transactions. Additionally, the Scaling Bitcoin event in Hong Kong revealed that 80% of Bitcoin mining operations took place within China’s borders.

But will this trend last and will the government attempt to clamp down on the digital currency? Could the Chinese government’s own centralized virtual currency that they’re currently researching be their answer to Bitcoin?

Zennon Kapron, founder of the fintech consultancy firm Kapronasia, tells the WSJ that China has accounted for most of Bitcoin’s gains this year, saying:

Investors are worried about the decreasing value of the Yuan, and it seems that China is leading a lot of the movement. People are protecting their investments by converting yuan into Bitcoin.

Do you think the current Bitcoin surge in value is due to the economic crisis in China? Let us know in the comments below.

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