China Bond Bubble Bursts, Yuan Weakens, Bitcoin Surge Imminent
The Chinese yuan is presumed to weaken even more in the upcoming months, which will ultimately push the price of bitcoin further.
On Dec. 15, the Chinese bond futures market suffered a record crash, plunging from 102 to nearly 94. Offshore yuan has also increased significantly after the Fed raised rates, rising from 6.9 to approximately 6.95 overnight. As the Chinese New Year approaches and outflows accelerate, the Chinese yuan will presumably weaken even more in the upcoming months, which will ultimately push the price of Bitcoin further.
On Dec. 13, the price of Bitcoin reached a 34-month high, mostly due to the depression and devaluation of the Chinese stock markets and yuan. As weakening of the yuan continued, Bitcoin price has stayed above the $760 margin for the past week.
Stock market decline, futures crash
The Shanghai Stock Exchange is on its way towards a three-month low. It is struggling to bounce back and has consistently fallen since December, demonstrating no sign of recovery.
Moreover, Chinese authorities put a stop to key bond futures trading on Thursday, as investors began to panic and sell their securities over concerns of surging capital outflow as the country approaches the Chinese New Year.
With the Shanghai Stock Exchange failing to recover, capital controls tightening, the economy slowing down and the Chinese yuan weakening, investors have begun to look for alternative assets and currencies.
However, the WSJ revealed that analysts are skeptical about the Chinese government’s controversial methods in maintaining economic growth. Its current programs to lend money to investors to purchase traditional assets like bonds and commodities are building a series of large bubbles, which analysts presume will burst in the foreseeable future.
Hao Hong, co-head of research at Bocom International stated:
“People woke up to the fact that the bond bubble is too large. The bond market in China is under severe pressure, across the board.”
Thus, some of the bubbles, including the bond futures market and real estate industry, are beginning to look significantly unstable and will burst in the short-term. Investors are starting to realize the excessive amount of investment and money involved in these markets and acknowledge the fact that they are simply too large.
If this trend continues, local investors that are desperately attempting to move money outside of the country will look for assets with transportability, high liquidity and stable global exchanges like Bitcoin. As the Chinese New Year approaches, the demand for Bitcoin in China will surge, possibly pushing the price of Bitcoin to new YTD highs.