China eased its grip on the yuan (CNY) on Tuesday, allowing it to depreciate beyond a key level, likely in response to President Donald Trump’s aggressive tariffs.
Crypto analysts anticipate that the yuan’s depreciation could favor bitcoin (BTC), drawing parallels to similar events from a decade ago.
Early Tuesday, the People’s Bank of China (PBOC) set the so-called daily yuan fix at 7.2038 per dollar on Tuesday, the weakest since September. The yuan isn’t a free float currency like the USD, euro and other G-7 nations and is allowed to trade in a range of 2% on either side of the daily fix announced at 9:15 a.m. Beijing time.
The 7.2 level has been considered a “harder line in the sand” for the central bank for years. The USD/CNY pair has traded above the said level a few times since 2022 but never established a foothold.
That could change with the PBOC explicitly setting the daily mid-point beyond the 7.2 level. In other words, the move signals a shift to managed depreciation of the yuan, which will help keep China’s exports cheaper and competitive, potentially offsetting the negative impact of Trump’s tariffs on Chinese goods.
Capital flight into BTC?
The managed depreciation could also trigger capital flight from China, which may find home in cryptocurrencies, according to analysts.
“The U.S. is now pursuing full-scale economic pressure on China, which may be forced to respond with quantitative easing and a currency devaluation. If so—and if China permits capital flight—Bitcoin could surge, much like it did in 2015,” Markus Thielen, founder of 10x Research, said in a note to clients Monday.
The Chinese central bank devalued the yuan by 1.9% on Aug. 11, 2015, the most significant single-day depreciation in over two decades, sending shockwaves across global financial markets. Bitcoin initially fell over 20% with the U.S. stocks but quickly turned higher and surged nearly 60% in the following four months.
Ben Zhou, CEO and founder of the crypto exchange Bybit, voiced a similar opinion on X, saying yuan depreciation tends to bode well for bitcoin.
“China will try to lower RMB to counter the tariff, historically, whenever RMB drops, a lot of Chinese capital flow into BTC, bullish for BTC,” Zhou said on X.
Regulatory hurdles
While history tells us to expect a bullish BTC reaction to yuan depreciation, note that over the years, China has become anti-crypto, citing financial stability risks and has some of the world’s harshest regulations.
A new regulation announced earlier this year requires banks to monitor and report suspicious international transactions, including those involving cryptocurrency. Banks are obligated to investigate and report any risky crypto trades, which may result in financial restrictions and potential blacklisting for the trader.
The stringent stance means local traders may have a tough time diversifying into bitcoin and other digital assets in the event of a sustained yuan depreciation.
“Since August 2024, the Supreme People’s Court has significantly increased the legal risks for individuals using cryptocurrencies in connection with money laundering, which could easily extend to cases of capital flight,” Thielen said. “This presents a major deterrent, despite rising economic uncertainty.”
