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Will Massive Chinese Capital Outflows Supercharge the Cryptocurrency Market in 2019?

Will Massive Chinese Capital Outflows Supercharge the Cryptocurrency Market in 2019

The past months have seen a rising rate of Chinese capital outflows. Whilst the reason for this is endemic to how capital is managed in China, it may result in massive amounts of capital entering the cryptocurrency markets.

China’s strict capital outflow restrictions

Although China has seen massive economic growth under the past few decades, it is characterized by particularly stringent capital restrictions. This is, by and large, a relic of the time during which China first eschewed its strict command economy.

However, although the explosive growth of the Chinese economy has led the nation to gradually embrace more market reforms, capital outflow restrictions have remained exceptionally rigorous. In fact, national regulations stipulate that people cannot legally move over $50,000 out of China.

This requirement is largely seen as a way for China’s ruling communist party to keep a hold on the growing number of affluent Chinese individuals. Nevertheless, wealthy Chinese individuals have grown increasingly creative in finding ways to move more than $50,000 worth of money abroad.

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For example, Chinese nationals have been accused of driving up the prices of local housing markets in cities such as London, Sydney, Singapore, and Vancouver. Dubbed ”gateway cities,” Chinese nationals make substantial real-estate investments in such areas in an effort to bind capital abroad.

The Chinese government is naturally aware of these schemes to purposefully move capital abroad. However, the government has not yet decided to crack down on such investors.

Nevertheless, wealthy Chinese nationals are likely aware that this is only a matter of time. In fact, China imposed even higher capital controls just a few months back in an effort to hinder capital flight.

Will Chinese investors turn to cryptocurrency?

As such, cryptocurrency presents a logical outlet for Chinese capital outflows. Moreover, as it represents an opportunity to transfer vast sums of wealth across nation-borders, it is possible that Chinese investors will not be as readily dissuaded by potential volatility as regular investors.

Wealthy Chinese nationals will likely disregard the risk of potential price decreases in return for the ability to transfer far more than $50,000 worth of capital abroad.

If this indeed becomes the case, the cryptocurrency market will likely be boosted as Chinese capital outflows increase. Furthermore, it seems as if this might be about to happen.

Trade data from the past months shows that Chinese capital outflows are now beginning to rise. In fact, CCN reports that the last time China saw a capital outflow increase of this magnitude, Bitcoin began a bull run from $200 to its massive all-time high of $20,000.

What’s more, the Chinese yuan has increased steadily against the US dollar since November of 2018. If this continues – along with increased Chinese capital outflows – it seems likely that Chinese funds will enter the cryptocurrency market.

As such, it will be interesting to see whether this will indeed have any effects on the cryptocurrency markets in 2019 – and if so, how substantial.

Image Credits: “Flickr”

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