Monday, January 2, 2017

Bitcoin surges over $1000 on Chinese capital flight



Various catalysts for the recent surge have been cited, chief among which is the ongoing crackdown against cash in India providing a new source of demand for bitcoin. However, the most immediate driver of the recent burst in Chinese demand originates, not unexpectedly, from China where Beijing over the weekend implemented even more of what we have said since September 2015 will keep pushing bitcoin relentlessly higher: capital controls.

Recall that as we noted over the weekend, in order to further curb capital outflows, Chinese banks will be required to report all yuan-denominated cash transactions exceeding 50,000 yuan (around 7,100 US dollars) to the People's Bank of China (PBOC), down from the current level of 200,000 yuan, according to a PBOC document released on Friday. Cross-border transfers more than 200,000 yuan by individuals will also be subject to the report process. In terms of foreign currencies, the report threshold remains at the equivalent of 10,000 US dollars for both cash transactions and overseas transfers.

How do we know that this latest PBOC intervention in capital markets was merely the latest form of capital controls? Because the PBOC immediately said it wasn't.

As Xinhua reported overnight, "the policy stoked worries that the government is trying to impose capital control in a disguised form."

"It is not capital control at all," central bank economist Ma Jun said.

Actually, imposing limits on capital movement, i.e. controls, is by definition just that.

I recently recommended Bitcoin as a top speculation for 2017. I still think it could move materially higher. However it is being used mainly by Chinese citizens to skirt capital control laws in China. If it continues to grow, as it currently is, at some point the Chinese government is going to slap it down and then we will see a big dip in Bitcoins price. It is interesting to note that several times in Bitcoins short history it has run up a few hundred percent only to drop well over 50%. 

I think Bitcoin long term has a bright future however right bow it's price is being driven higher by Chinese nationals trying to get capital out of China before the currency loses more value. Caveat Emptor

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