Bitcoin is up 123% from its January lows and over 50% higher than its early-September (post-Bitcoin XT anxiety) lows when we first warned about the virtual currency's relationship with possible China outflows. Despite promises of easing capital controls (and the chaos in the Yuan market over the last few days), it appears the Chinese are not waiting for the other shoe to drop and as offshore Yuan tumbled, so Bitcoin surged above $340 this morning (rallying all the way back to unchanged YoY).
After sending Yuan soaring - on an apparent easing of capital controls - Bitcoin (and Yuan) are now ignoring official statements are back to rotating away from the Chinese currency. And as we recently concluded, the last week or two suggests, perhaps more importantly, that China easing (and outflows implict from further devaluation) now appears to go straight to Bitcoin.
As we concluded previously, 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, 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.
* * *
As Bloomberg noted overnight,
China’s central bank is finalizing revisions to its foreign-exchange rules that would loosen some capital controls while preserving its ability to intervene in times of volatility