Chinese Dissidents Exit into Bitcoin? A Report Based on a Zerohedge Analysis

Zerohedge reports a means to measure outflows of currency from China by dissidents seeking to escape the communistic regulatory regime, or at least have a share of their wealth escape.  Zerohedge points out that upon large exits of currency from China, Bitcoin tends to rise thereafter:

[O]n October 20 when Bitcoin was trading just under $30,000, a level it had been for much of 2023. And, just as we correctly predicted at the time following this surge in Chinese FX outflows, bitcoin - traditionally China's preferred means to circumvent Beijing's great capital firewall since gold is, how should one put it, a bit more obvious when crossing borders - promptly exploded more than 100% higher in the next 4 months.

Zerohedge cited Reuters January 25, 2024 report where:

Dylan Run, a Shanghai-based finance sector executive, started moving a bit of his money into cryptocurrencies in early 2023, when he realized that the Chinese economy and its stock markets were going downhill.

Crypto trading and mining has been banned in China since 2021. Run used bank cards issued by small rural commercial banks to buy cryptocurrencies through grey-market dealers, and capped each transaction at 50,000 yuan ($6,978) to escape scrutiny.
"Bitcoin is a safe haven, like gold," says Run.

He now owns roughly 1 million yuan worth of cryptocurrencies, accounting for half of his investment portfolio, compared with just 40% in Chinese equities.

His crypto investments are up 45%. China's stock market, meanwhile, has been sinking for 3 years.

Like Run, more and more Chinese investors are using creative ways to own bitcoin and other crypto assets that they believe are safer than investing in crumbling stock and property markets at home.

They operate in a grey area. While cryptocurrency is banned in mainland China and there are strict controls on capital movement across the border, people are still able to trade tokens such as bitcoin on crypto exchanges such as OKX and Binance, or through other over-the-counter channels.

Mainland investors can also open overseas bank accounts to buy crypto assets.
After Hong Kong's open endorsement of digital assets last year, Chinese citizens are also using their $50,000 annual forex purchase quotas to move money into cryptocurrency accounts in the territory. Under Chinese rules, the money can only be used for purposes such as overseas travel or education.

China's economic downturn "has made investment on the mainland risky, uncertain and disappointing, so people are looking to allocate assets offshore", said a senior executive of a Hong Kong-based cryptocurrency exchange, who declined to be identified due to sensitivity of the topic.

In forecasting large investments into bitcoin by Chinese dissidents, Zerohedge indicates official numbers are misleading and so they look alternatively into FX flows:

China's officially reported reserves are woefully (and perhaps purposefully) inaccurate of the bigger picture.  Instead [using our gauge of FX flows] we find that China's net outflows were $39bn in March, up from $11bn in February and the fastest pace of outflows since the September spike in FX outflows which we duly noted half a year ago. 

Chinese policymakers are still keen on maintaining FX stability . . . the reality is that with China desperate to boost its exports at a time when its great mercantilist competitor, Japan, has hammered the yen to the lowest level in 3 decades, it is only a matter of time before the currency devaluation advocates win, as they did in 2015. 

We hope that we don't have to remind readers that the first big trigger for bitcoin's unprecedented eruption higher starting in 2015 was - you guessed it - China's August 2015 FX devaluation.

Bitcoin is not backed by the full faith and credit of any nation, yet the despotic state of affairs globally and sense of a decline in patriotism, with few exceptions such as Argentina and Hungary, causes faith in this bitcoin “currency” to ascend higher.  Therefore, given the design features of bitcoin – mainly its transferability and privacy – it assists in circumstances such as the current, where capital flight requires speed and stealth.

In the long run, the flows into bitcoin will rise and fall, in large part, when capital flight occurs as can be divined by the Zerohedge article.  While we take no position on bitcoin as an investment whatsoever except to say it is very scary – in the short run, Zerohedge’s analysis is quite interesting and reminds of the large FX trades that made the demonic George Soros a wealthy man.  Of course discuss such trading ideas with your advisors and brokers.