"Surge in Capital Outflows from China" – The Key Behind-the-Scenes Driver of Bitcoin's Meteoric Rise?

The well-known financial blog ZeroHedge reports that with the sharp increase in foreign exchange outflows from China in October 2023, Bitcoin prices soared by more than 100% over the following four months. The article highlights that the first major trigger for Bitcoin's unprecedented rally beginning in 2015 was China's currency devaluation in August of that year.

ZeroHedge writes, "In October 2023, when we noted that China’s foreign exchange outflows had just reached a high of $75 billion — the largest monthly outflow since the 2015 currency devaluation — we concluded that the unfavorable interest rate differential between China and the U.S. might imply ongoing devaluation and capital outflow pressures over the coming months."

"In other words, China's largest foreign exchange outflows in years were just the beginning. Soon, not only would geopolitical situations and central banks worldwide feel the panic of capital flight, but also billions of dollars of Chinese savings were flowing somewhere, and what digital currencies the Chinese were using to launder money," the article continued.

"We wrote on October 20, 2023, when Bitcoin was trading just below $30,000, which was the level for most of 2023. And as we correctly predicted then," ZeroHedge stated.

As the outflow of foreign exchange from China surged, Bitcoin's value rapidly increased by more than 100% in the subsequent four months.

Source: ZeroHedge

Although conventional wisdom suggests that the surge in cryptocurrency prices was primarily due to the U.S. approval of 11 Bitcoin spot ETFs in January, ZeroHedge explains, "Many missed the January Reuters report that confirmed our 2015 thesis, which stated that far beyond ETF inflows and rapidly changing sentiment, or frankly any daily news stream, the massive wall of inert capital in China has always been the biggest driver of Bitcoin's trajectory, especially during periods of forex and capital flight that often precede some form of capital controls."

"We bring all this up because, six months after we first correctly predicted the surge in Chinese foreign exchange outflows would lead to a spike in Bitcoin, it's time to do it again."

"However, one might not realize anything if they only look at the official foreign exchange reserves data published by the People's Bank of China (PBoC), which currently reports reserves at $3.246 trillion, near the highest level in the past four years, and as the chart below shows, the monthly cash flow is very stable."

The article points out, "Of course, the issue is, as we have previously explained, the official reserves reported by China are very inaccurate compared to the bigger picture, perhaps intentionally so. If we use our preferred indicator of forex flows, which looks at onshore spot transactions, newly entered and canceled forward trades, and data from the foreign exchange regulator on cross-border yuan movements, the net outflow in March was $39 billion, up from $11 billion in February, the fastest pace since September 2023."

ZeroHedge emphasizes, "We duly noted the surge in Chinese forex outflows six months ago."

As forex outflows picked up pace again, the U.S. dollar strengthened further in March, and the USD/CNY spot rate increased, as expected during capital flight, and Bitcoin reached a new historic high of over $70,000.

The article claims, "While Chinese policymakers remain keen to maintain exchange rate stability, the counter-cyclical factors in the daily yuan fixing are still significantly negative, and offshore yuan liquidity has tightened significantly in recent weeks. However, the reality is, with China desperately needing to boost exports, its largest mercantilist competitor Japan has pushed the yen to a 30-year low, and it's only a matter of time before the advocates of currency devaluation win, just as they did in 2015."

"We need not remind readers that the first major trigger for Bitcoin's unprecedented rally since 2015 was, you guessed it, China's currency devaluation in August 2015," ZeroHedge pointed out.

Source: ZeroHedge

In conclusion, the article states, if Bitcoin doubles again in the next six months, don't be surprised. This movement has nothing to do with ETF inflows, halvings, or frankly, anything else happening in the U.S. Instead, it is entirely driven by massive capital movements from China.