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Chinese Yuan's Nosedive Could Be Really Bad News for Bitcoin

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By Jaden Francis - - 5 Mins Read
Hand holding Yuan banknote with decreasing arrow and stock market graph chart.
Photo | Dilok Klaisataporn/Shutterstock

China grapples with an impending economic collapse due to deflation concerns and a stagnant property market.

As a result, foreign investors are withdrawing their investments from the country, creating a ripple effect on various financial sectors.

An observer suggests these actions could negatively impact Bitcoin (BTC) through the foreign exchange channel.

"China is incentivized to keep a lid on BTC to maintain a relative veil of currency stability and discourage capital flight. Past episodes when the Yuan has come under pressure have coincided with BTC underperformance," said David Brickell, head of international distribution at Toronto's FRNT Financial.

China's Economic Crisis and Currency Devaluation

China's economy is at risk of deflation, which may result in a renewed devaluation of its currency.

The property market remains stagnant, further exacerbating the country's financial woes.

Consequently, foreign investors have been quick to withdraw their capital from China, causing adverse effects on the overall economic landscape.

The Chinese yuan (CNY) has experienced a significant decrease in value, with a 1.39% drop against the U.S. dollar.

Its offshore counterpart, CNH, has also witnessed a devaluation of 1.25%. Furthermore, the leading equity index in China, the Shanghai Composite, has plummeted by over 7%, hitting its lowest point since March 2020. These alarming statistics highlight the severity of China's economic crisis, which doesn't sound good.

People's Bank of China's (PBOC) Approach

The People's Bank of China (PBOC) adopts a managed-float system, which pegs the value of the Chinese yuan to a basket of 24 currencies.


BTCCNY price chart graph
Bitcoin Chinese Yuan price chart | TradingView


Thus, this approach allows for a slight 2% fluctuation on either side of the daily fix or reference point.

However, recent actions by the PBOC aimed at resolving the economic crisis, such as selling U.S. dollars onshore and tightening liquidity in the offshore foreign exchange market, incurred unintended consequences.

China's struggling economy signifies a considerable decline in its perceived growth.

The prolonged deflation issue, marked by a decline in the Consumer Price Index over the past three months, is a major obstacle to Beijing's aspiration for global economic dominance.

Foreign investors significantly contributed to China's rise and are now seeking to safeguard their balance sheets.

Simultaneously, governments across the globe are reevaluating their perceptions of China's status as a rising star.

Moreover, Beijing's corrective actions will largely shape the trajectory of global economies in the coming decades.

China's Bitcoin Holdings and Mining Pools

Previously, China-based mining pools held significant dominance over Bitcoin's hash rate; however, this situation has gradually changed.

Presently, the leading global mining pool, Foundry, operates in the United States. Notably, many miners within Foundry's pool actively pursue large-scale Bitcoin mining, focusing on using "green energy" that adheres to ESG (Environmental, Social, and Governance) standards.

In conclusion, China's faltering economy and currency devaluation threaten its envisioned future.

The ongoing economic crisis and the potential repercussions for Bitcoin call for immediate action from Beijing.

While foreign investors protect their interests, the shifting perceptions of China's economic status impact global markets.

Moreover, the evolving landscape of Bitcoin mining indicates a decline in China's dominance and a growing sustainable mining trend in other regions.

Only time will tell how the Chinese economy and Bitcoin will navigate these turbulent times.