In October 2023, China experienced a significant increase in FX outflows, reaching $75BN, the largest monthly outflow since the 2015 currency devaluation. This led to concerns about persistent depreciation and outflow pressures due to the unfavorable interest rate spread between China and the US. It was predicted that this trend would continue, with capital flight out of China becoming a major issue. Bitcoin, traditionally used by China to circumvent capital controls, saw a significant surge in value following the increase in FX outflows.
Fast forward to July 2024, and China’s capital flight intensified, with Beijing dumping record US securities. This sparked another surge in Bitcoin value, as Chinese investors sought alternative assets to protect their wealth. Despite official data showing stable FX reserves, a closer look at the actual FX flows revealed a massive $82 billion net outflow in January 2025, the second largest since the 2015 devaluation.
The data indicated significant outflows through various channels, including onshore spot transactions and cross-border RMB flows. Chinese investors were selling US securities while increasing their holdings of gold and Bitcoin. The weakening yuan and fears of Trump tariffs further fueled capital flight, leading to a surge in the USDCNH spot rate.
As China grappled with economic challenges and the possibility of devaluing the yuan, Bitcoin emerged as a safe haven asset for Chinese investors. The ongoing capital flight from China was expected to drive further increases in Bitcoin value, highlighting the interconnectedness of global financial markets.