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Weakinging Yuan drives Bitcoin to Jump to Three-Month High! 25 Oct 2016, midnight

Read time: 3 minutes

Bitcoin rose to a nearly three-month high between a surge in volume as the yuan increased to a six-year low, reinforcing Chinese demand for alternative assets. The cryptocurrency surged as much as 4 percent from Friday to $655.50 (approx 536 British Pounds), the highest since July 29, according to data compiled by Bloomberg. Trading volume climbed to an almost seven-month high of 5.5 million Bitcoin on Sunday.

The gains of Bitcoin are agreeing with a new bout of currency vulnerability in China, which accounts for about 90 percent of trading. The digital asset allows Chinese people, who face capital controls that restrict the amount of cash they can move overseas, to invest in another currency. Bitcoin’s value is now close to resuming from a plunge in early August that was triggered by the hacking of Hong Kong-based exchange Bitfinex.

“As the yuan enters a path of depreciation, investors will consider investing in assets that can preserve value and hedge risks," said Zhu Jiawei, a Beijing-based CEO at Huobi, one of the largest Chinese Bitcoin exchanges.

The decline of the Yuan accelerated this month as the dollar surged amid mounting expectations for a U.S. interest-rate rise by the end of the year. China has made it harder to get money overseas since August 2015’s devaluation as it attempted to begin a vicious cycle where outflows fueled further depreciation.

Bitcoin skyrocketed 80% from the end of 2015 to reach a 2 1/2-year high of $777.01(around 636 British Pounds) on June 17 amid accelerated yuan declines and expectations for a drop in Bitcoin supply in July. Bitcoin was trading at 4,488.6 yuan on Monday, amounting to a premium of about 2 percent contrasted with its dollar price. The gap is likely to widen further as sterner capital restrictions have made it harder for traders to arbitrage the difference, stated Arthur Hayes, Hong Kong-based founder of Bitcoin exchange BitMEX. He expects bitcoin to strengthen to $1,000(around 820 GBP) by January as the yuan falls to 7 against the greenback, he said. China’s exchange rate fell 0.1 percent Monday to 6.7723. "The continued devaluation of the Chinese yuan is what’s prompting traders at the margin to buy Bitcoin," Hayes said.

What We Say?

Anything to push up the Bitcoin price is great news! It's common knowledge to many people now that China devalues its currency very regularly. If this drives many people to buy Bitcoin the price could go up astronomically, and therefore for people who are trading Bitcoin or investing should pay attention to the Chinese government and the Yuan as it seems to be an excellent leading indicator!

If you have any questions, ideas or suggestions we would love to hear from you!


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