Exchange controls have limited impact on Bitcoin

China has launched another round of capital controls. The central bank has suspended foreign exchange related services for some foreign banks. How will it affect local Bitcoin trading and the overall Bitcoin market?

The Chinese government wants to stop ongoing capital outflows, which are mainly related to the depreciation of the renminbi. Just a few months ago, the government reduced the withdrawal limit on credit cards.

Besides the obvious reasons of monetary inflation, China needs to increase the liquidity of the RMB after its recent entry into the IMF reserve currency club, which means issuing more currency. Smart people and investors who don’t want to see their wealth depreciate can find safe havens in hard assets such as precious metals, real estate and Bitcoin.

Chinese bitcoin exchanges have indeed seen an influx of new customers in recent months. Bitcoin prices rose from October to November, following another round of capital tightening controls, and the two are correlated but not directly dependent. Judging from the price developments these days, the new set of controls has not affected its price or trading volume. Of course, this is also partly due to the holiday.

Astrid Tao, operations and international marketing manager at Huobi, told CoinDesk :

“Although Huobi currently offers bitcoin-to-RMB and bitcoin-to-USD trading, bitcoin trading volume is still small compared to other markets, so we believe the impact of the new foreign exchange policy is limited. ”

China’s largest bitcoin exchanges have previously announced that capital controls have had no meaningful impact on their business.

However, in the long run, more and more people will use Bitcoin as a means of value investment. Investment channels in China are very limited, and there is no sign of improvement in the real estate and commodity markets. Foreign exchange controls will help a large amount of capital seek investment, and we believe Bitcoin will be a good choice.

According to BTCC CEO Li Qiyuan, China's foreign exchange controls have no significant impact on the price of Bitcoin and the number of people trading Bitcoin. There is a view that when something big happens or is about to happen, it will affect the price of Bitcoin. For example, when the Cyprus financial crisis occurred in the spring of 2013, some people believed that the downgrade of Cyprus' credit rating would lead to the collapse of the euro or at least a eurozone crisis. Speculation based on this crisis drove up the price of Bitcoin.

He believes that recent adjustments to foreign currency controls will not affect Bitcoin prices or trading.

“Capital controls have been in place in China for a long time and they have taken the Bitcoin market into account. The People’s Bank of China modifies capital controls from time to time. These are minor adjustments and have no noticeable impact on Bitcoin trading.”