Chinese exodus of wealth could be pushing crypto markets

Getting your Trinity Audio player ready...

A new theory has emerged for why the cryptocurrency markets have turned bullish this year, and speculates that they might grow exponentially if the theory proves true. What if Chinese currency controls are forcing citizens to conduct deals in cryptocurrency to get around the law?

The South China Morning Post (SCMP) tells the story of Yu Yongding, a wealthy former banker who simply wanted to buy US$20,000 to pay for a family vacation. Because of China’s policy to restrict the ability of its citizens to transfer any more than US$50,000 abroad per year, his transaction was reviewed and denied due to his elderly age, despite not having gone over the cap.

The SCMP reached out to the State Administration of Foreign Exchange (SAFE) to inquire why Yu would have been denied, and got a general answer that rules have not changed. Despite that, SCMP theorized that because of the escalating U.S.-China trade war, SAFE might be protecting against a metaphorical run on the bank, with citizens looking to safeguard their wealth in other currencies, or abroad.

ZeroHedge theorizes that if this is happening to numerous wealthy Chinese businessmen, this could be part of why the cryptocurrency markets are currently pumping. As China can’t stop the flow of digital currencies quite as easily, a flood of Chinese wealth could be causing the market to expand. They even tease that if US$26.7 trillion in Chinese deposits suddenly need a new method of leaving the country, it could mean big things for the markets.

There’s a problem with that thinking though. To use cryptocurrency to specifically avoid Chinese financial regulations is burning a bridge that can’t easily be rebuilt. As blockchains are very traceable, and China has proven that they can build powerful digital firewalls, they will eventually figure out how to stop the flow of capital out of their country. If ZeroHedge’s theory is correct, and Chinese millionaires and billionaires are specifically using the markets to avoid Chinese laws, it’s a great way to make sure China is a digital currency headache for the foreseeable future.

The trade war is regrettable, and freedom loving people of the world might disagree with China’s laws. Both those things being said, the only way for the cryptocurrency markets to grow sustainably is to work within those laws and build toward a future where China welcomes a greater presence for cryptocurrencies. A few hundred billion of investment and an angry Chinese government is a bad trade-off for a few dozen trillion and the engine of the Chinese economy.