Analysts have warned that China’s capital outflows are accelerating while the yuan is depreciating sharply. They predict the situation to worsen in 2017. Bitcoin.com asked Spencer Bogart, Equity Research analyst at Needham & Company, how China’s situation could affect bitcoin.
Yuan Headed for Biggest Decline in Over 20 Years
Goldman Sachs recently warned that the Chinese yuan is headed for its biggest annual decline in over 20 years. This decline is accompanied by China’s accelerating capital outflow, the firm said.
In the first 10 months of this year, capital outflows from China rose to $530 billion, reported The Financial Times.
Head of research at CEB International Investment Ltd., Banny Lam, commented:
Capital outflows and yuan depreciation will continue or even worsen by the end of this year and the first quarter of 2017, as investors are getting increasingly concerned about a stronger dollar and China’s economic conditions.
Effects on Bitcoin
Analyst Spencer Bogart, who leads Needham & Company’s coverage of bitcoin, recently shared some thoughts on how China’s situation might affect bitcoin with Bitcoin.com.
“At most, bitcoin could only account for a tiny percentage—probably less than 1%—of capital flight from China,” Bogart explained. “Regardless of whether capital flight from China intensifies or wanes,” he pointed out that “The real question in 2017 is whether Bitcoin will gain or lose market share as a vehicle for capital flight.”
Bitcoin has been one of the ways to transfer capital out of China. Mr. Wayne Zhou, a
director at a multinational consumer goods company in Shanghai, for example, is considering buying the digital currency for this purpose, he told the Straits Times. “I feel safer having my money invested overseas,” said Zhou who started transferring money out of China several years ago.
There are other more popular methods to transfer money out of China such as over-invoicing of Chinese imports, which Zhou also used. However, the Chinese authorities have reportedly clamped down on these methods.
In addition to over-invoicing, Bogart mentioned overseas investments and international acquisitions by Chinese companies as more heavily used channels for capital flight than bitcoin. However, he noted:
To the extent that China further tightens capital controls in 2017 the burden will likely be focused on other more prominent and heavily used channels for capital flight.[…] If so, some capital outflows will shift to other channels and Bitcoin is a likely benefactor in this scenario.
In September, Bogart raised his bitcoin price projection from $655 to $848 “due to faster-than-expected adoption and improving fundamentals.” He explained to Bitcoin.com that Needham’s price target “is based on assumptions about bitcoin’s future market share” such as share of payments markets and share of gold markets.
Meanwhile, amid Chinese market turmoil, bitcoin’s price has soared to its highest level since January 2014 at press time.
What impact do you think the Yuan’s decline and China’s capital flight will have on bitcoin? Let us know in the comments section below.
Images courtesy of Shutterstock, Goldman Sachs
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