We could see and incredible rally on Bitcoin over the past few weeks. This alternative to conventional fiat money has already jumped above the $700 mark and trades now keep it stable in this territory. So it is natural, that the speculations about $800 has found their ears in the world of traders.
But what is the cause for such increase? It is the largest jump since June 2016, mostly because of a strong demand for Bitcoin in China. It is a consequence of significant capital outflow from this East Asian country even with strict regulations and capital controls.
Weaking national currency is stimulating the outflow for last two years. Chinese foreign exchange reserves are dramatically dropping and such acceleration is only supprting the ideas of local people to buy foreign assets rather as to keep yuan.
As for the capital outflows, there are two major factors:
- exporters from the mainland are keeping their money in offshore,
- Chinese citizens and their demand for Bitcoin to avoid depreciation of yuan and find safe haven; as well as for cross-border investments and transactions.
It is expected that the capital outflow of China should reach $573.2 billion for this year (according to Citigroup Global Markets), the half yearly numbers stood at around $286 billion. If the actual figures are in any way going to match the estimated numbers, then the demand for alternate currencies like Bitcoin is expected to only go up during the last two months of 2016. In October, Goldman Sachs warned China stating that the country’s outflows may be worse than it appears to be. As yuan hit a 6-year low in October, the country continues to tighten its capital controls which may have driven not just the individuals and investors but also corporates to Bitcoin as the fear of depreciation looms over Chinese yuan.
Nevertheless, what is important for us, is the increase in demand for Bitcoin from various segments of the Chinese population. We expect this to continue to reflect in the upward movement of the digital currency’s price and maybe we could see the $800 mark very soon.
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