China reduced its control over the yuan (CNY) on Tuesday, allowing it to fall past an important threshold, likely in reaction to the tough tariffs imposed by President Donald Trump.
Cryptocurrency experts predict that this decline in the yuan might benefit bitcoin (BTC), drawing similarities to incidents from ten years ago.
Earlier on Tuesday, the People’s Bank of China (PBOC) established the daily yuan reference rate at 7.2038 per dollar, marking its weakest level since September. Unlike freely floating currencies—such as the USD or euro—the yuan is regulated and permitted to fluctuate within a 2% margin above or below the daily reference set at 9:15 a.m. Beijing time.
The 7.2 benchmark has long been regarded as a critical boundary by the central bank. Although the USD/CNY pair has intermittently breached this limit since 2022, it has not been able to maintain that level.
This situation may change with the PBOC intentionally setting the daily midpoint above the 7.2 level. Such a move indicates a willingness to effectively manage the yuan’s depreciation, which could render China’s exports more affordable and competitive, potentially mitigating the adverse effects of Trump’s tariffs on Chinese products.
### Capital Flight into BTC?
This managed depreciation could also prompt capital outflow from China, potentially finding refuge in cryptocurrencies, analysts suggest.
“The U.S. is now applying intense economic pressure on China, which may be compelled to react with monetary easing and currency devaluation. If that happens, and if China allows capital to leave, Bitcoin could see a surge, much like it did in 2015,” remarked Markus Thielen, founder of 10x Research, in a note to clients on Monday.
The Chinese central bank previously devalued the yuan by 1.9% on August 11, 2015, marking the largest single-day depreciation in over twenty years, which sent shockwaves through global financial markets. Bitcoin initially dropped over 20% alongside U.S. stocks but swiftly rebounded, climbing nearly 60% over the subsequent four months.
Ben Zhou, the CEO and founder of the crypto exchange Bybit, expressed a similar view, noting on X that a falling yuan typically bodes well for bitcoin.
“China will likely attempt to lower the RMB to counter the tariffs, and historically, whenever the RMB depreciates, a considerable amount of Chinese capital flows into BTC, which is bullish for BTC,” Zhou stated on X.
### Regulatory Challenges
While history suggests a bullish response from BTC to yuan depreciation, it’s important to note that China has adopted an increasingly hostile stance toward cryptocurrencies, citing risks to financial stability and enforcing some of the strictest regulations globally.
A new regulation enacted earlier this year mandates that banks monitor and report any suspicious international transactions, including those involving cryptocurrencies. Banks must investigate and disclose risky crypto transactions, which could result in financial penalties and possible blacklisting of the traders involved.
This tough regulatory environment implies that local traders might face significant hurdles if they attempt to diversify into bitcoin and other digital assets during a period of continued yuan depreciation.
“Since August 2024, the Supreme People’s Court has markedly heightened the legal risks for individuals engaging in cryptocurrencies related to money laundering, which could easily extend to cases of capital flight,” Thielen cautioned. “This creates a substantial deterrent, even amid growing economic uncertainty.”