China, a country once believed to be one of the top financial powerhouses in the world, is starting to show its true colors. In recent weeks, the Chinese Yuan has been devaluating at a rapid pace, and many wealthy investors are moving all of their funds out of the country while they still can. But the Chinese government is not sitting by idly, and is enforcing capital controls to keep funds within China’s borders, and not allow any foreign funds to enter the market.
Also read: Bitcoin has More Value Than Fiat Currency
China: A Financial Disaster Waiting to Happen
China has been a financial powder keg waiting to explode. Not in a good way either, mind you, as the country is notorious for giving people with the “right connections” far more lenient rules and restrictions. While this trend is not just limited to China, things started getting out of hand in the country ages ago.
For many years, the Chinese economy has thrived because of investment opportunities for both domestic and international parties. As a result, capital has been repatriated illegally over the years, amounting to sums exceed the trillion USD cap. It goes without saying that running a corrupted form of financial infrastructure will not last very long.
For everyone who has ever invested in China, that story is about to come to an abrupt end. The way things stand right now, China will transition its economy out of the “investment” nature, and move into a “domestic consumption” model. Doing so will help the RMB gain back some of its lost value, or that is the plan at least.
These impending capital controls are forcing wealthy Chinese people to diversify their portfolios like never before. Most of the “cash rich” Chinese elite are buying up houses and properties. But even that market is about to close down, as the People’s Bank of China wants to ensure no properties can be bought overseas, to counter the hoarding of levitated property prices.
“These capital controls have affected 70 to 80 percent of current transactions by Chinese investors in the Australian market and some have already been suspended. The tighter foreign exchange rules are also set to impact the federal government’s relaunched Significant Investor Visa (SIV), which provides fast-tracked residency for those investing at least $5 million into Australia.”
Huge Opportunity for Bitcoin?
China has always been the most active Bitcoin trading market in the world. Roughly 70% of all daily Bitcoin trading volume is takes place through Chinese exchanges, and the country hosts the largest mining pools as well. Now that investors can no longer move funds in and out of the country through traditional means, Bitcoin is becoming an increasingly interesting investment vehicle.
But there is one major concern regarding Bitcoin, and that is whether or not these exchanges can provide enough liquidity to investors. Assuming the Bitcoin price would not be impacted in a negative way, a total of about 51 million CNY worth of Bitcoin can be traded on a daily basis. Keep in mind this number is only valid for exchanges dealing directly with the BTC/CNY trading pair.
When projecting this idea onto to BTC/USD trading markets around the world, there is only enough liquidity to cover 39,366,000 CNY. While this is still a large number of Bitcoin trading volume to be changing hands daily, without any major price impact, additional liquidity would not be a bad thing right now.
Furthermore, Chinese investors love to buy things with a tangible aspect. Properties are the preferred choice, as it allows them to park cash abroad outside of China’s capital controls. Additionally, these properties can become residents for family members who are moving out of China and are requesting passports abroad.
Financial experts do not expect Chinese investors to flock to Bitcoin all of a sudden, albeit most of them will be forced to look at creative solutions relatively soon. Never before has there been a need for a decentralized solution to move funds in and out of China without too much hassle, and Bitcoin is the perfect protocol to do so.
What are your thoughts on investment opportunities for the Chinese elite? Do you see an impact on the Bitcoin trading ecosystem sooner or later? Let us know in the comments below!
Source: BitMex Blog
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