For the past few weeks we have been detailing the tightening of China capital controls and what that may mean for Bitcoin (most recently here) [5]. It appears the outflows (that offshore Yuan weakness relative to onshore Yuan suggests) are accelerating as Bitcoin just traded above $314 (up from around $200 when we first warned about China as an upside drive in BTC's price) [6] - near the highest since December 2014.
Perhaps today's acceleration is on the heels of The Fed statement and expectations of a response from China...
[7]
Notably look at the consistently increasing volume (lower panel) reinforcing this surge.
As we recently concluded, the last week or two suggest, perhaps more importantly, that China easing (and outflows implict from further devaluation) now appears to go straight to Bitcoin.
As Overstock's Chairman noted previously [8]: gold is great, but tough to transport; thus, forcing Chinese into Bitcoin as we previously explained: [6]
As we concluded previously, [6]while China is doing everything in its power to not give the impression that it is panicking, the truth is that it is one viral capital outflow report away from an outright scramble to enforce the most draconian capital controls in its history, which - as every Cypriot and Greek knows by now - is a self-defeating exercise and assures an ever accelerating decline in the currency, which authorities are trying to both keep stable while also devaluing at a pace of their choosing. Said pace never quite works out.
So what happens then: well, China's propensity for gold is well-known. We would not be surprised to see a surge of gold imports into China, only instead of going to the traditional Commodity Financing Deals we have written extensively about before [9], where gold is merely a commodity used to fund domestic carry trades, it ends up in domestic households.
However, while gold has historically been the best store of value in history and has outlasted every currency known to man, it is problematic when it comes to transferring funds in and out of a nation - it tends to show up quite distinctly on X-rays.
Which is why we would not be surprised to see another push higher in the value of bitcoin: it was earlier this summer when the digital currency, which can bypass capital controls and national borders with the click of a button, surged on Grexit concerns and fears a Drachma return would crush the savings of an entire nation. Since then, BTC has dropped (in no small part as a result of the previously documented "forking" with Bitcoin XT), however if a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22 trillion in Chinese deposits in bitcoin (whose total market cap at last check was just over $3 billion), sit back and watch as we witness the second coming of the bitcoin bubble, one which could make the previous all time highs in the digital currency, seems like a low print.
Read more details on how to smuggle $10 million out of China (and why that is stopping) here... [5]
