On Friday, China’s central bank took critical steps to support the yuan, which has been experiencing a significant depreciation. The Central Bank’s actions have sparked discussions around the potential implications for Bitcoin (BTC), as some analysts believe that the yuan’s decline could create favorable conditions for the cryptocurrency.
The People’s Bank of China has announced that it will halt government bond purchases this month, recognizing that current demand has overtaken supply. This move signals policymakers’ discomfort with the declining bond yields, which inversely correlate with prices, as well as the ongoing depreciation of the yuan.
Recent data from TradingView highlighted that the yield on the benchmark 10-year Chinese government bond fell below 1.6% earlier this week, representing a staggering drop of 100 basis points over a 12-month period. In contrast, yields for U.S. government bonds increased to 4.7%, reaching heights not seen since November 2023 and widening the yield differential in favor of the U.S. dollar.
As a result, the Chinese yuan (CNY) has slipped to 7.32 per USD, marking an extended three-month losing streak driven in part by concerns surrounding tariffs under President-elect Donald Trump’s impending administration, set to commence on January 20.
In the wake of these financial shifts, some analysts have suggested that the depreciation of the yuan could lead to a potential capital flight. This outflow of capital may find its way into the cryptocurrency market, thereby bolstering Bitcoin’s bullish momentum as investors seek refuge amid economic uncertainties.
The interconnectedness of global financial systems underscores the need for vigilance as these developments unfold. Stakeholders in both traditional and digital asset markets should monitor the evolving landscape closely.
