Foreign currency prices have an intimate impact on financial markets and this week, China’s yuan devaluation came as a reminder of how fragile the Chinese economy is at the moment. A significant financial crisis is developing on the country; it seems that the model of economic growth has reached its natural end.
Similar to what happened in Greece, Chinese citizens seem to be buying bitcoin in order to preserve the value of their cash. Many already perceive the unexpectedly sharp devaluation of China’s yuan as an opportunity for bitcoin.
As the dollar and yuan move further apart, bitcoin could become a middleman for yuan holders looking to hedge their Investments. If bitcoin continues to rise, traders can change their cash back into yuan to turn a profit. On the other hand, if the cryptocurrency loses value, They can change it again into U.S. dollars, which are on the rise against the yuan.
When Greeks turned to bitcoin, the country had enacted capital controls making it difficult for people to move money. For that same reason, bitcoin was an attractive option since it allowed citizens to escape the government capital controls. In China, capital restrictions aren’t keeping people from freely moving their cash into other currencies, but this might happen at any moment and bitcoin presents an interesting opportunity whether the yuan falls further or not.
The digital currency has been regarded by traders as highly unstable, but market surprises like this one make bitcoin much more appealing, since Bitcoin volatility is decreasing as well.
So far, we’ve seen bitcoin having its best performance when traditional financial markets are in turmoil. This is likely to have a reaction on the Bitcoin panorama inside the country. In the future, the country is likely to have more and more businesses adopting new currencies like Bitcoin that are immune to interference. The financial crisis in the country is most certainly going to be a positive thing for Bitcoin.
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