Bitcoin society is observing the cryptocurrency price boost as the yuan extended a six-year low. Bitcoin price has risen to an almost three-month high as Chinese investors turn to alternative assets to overcome a weakening yuan.
According to Bloomberg, bitcoin has soared as much as 4 percent from Friday to $655.50, the highest since July 29. Trading volume has also increased climbing to an almost seven-month high of 5.5 million bitcoin on Sunday.
The boost of bitcoin price concurs with a new wave of yuan weakness in China, which accounts for about 90 percent of trading. Chinese investors tend to take a closer look at cryptocurrencies due to capital controls that limit the amount of cash they can move abroad.
The current raise of bitcoin price demonstrates that the digital currency starts to recover from a plunge in August that was triggered by the hacking of Hong Kong-based exchange Bitfinex. Totally, $72 million USD worth of bitcoin was recently stolen from Bitfinex exchange.
“As the yuan enters a path of depreciation, investors will consider investing in assets that can preserve value and hedge risks,” said Zhu Jiawei, Beijing-based chief operating officer at Huobi, one of the largest Chinese bitcoin exchanges.
The situation in China got worse this month as the yuan’s declines accelerated and the dollar surged amid mounting expectations for a U.S. interest-rate increase by year-end. “China has made it harder to take money overseas since August 2015’s devaluation as it sought to stem a vicious cycle where outflows fueled further depreciation. Bitcoin skyrocketed 80 percent from the end of 2015 to reach a 2 1/2-year high of $777.01 on June 17 amid faster yuan declines and expectations for a fall in bitcoin supply in July”, says Bloomberg.
As of Monday, the bitcoin price made up 4,488.6 yuan, amounting to a premium of about 2 percent compared with its dollar price. The difference is expected to become larger due to strict capital controls. Arthur Hayes, Hong Kong-based founder of bitcoin exchange BitMEX, states that bitcoin will possibly strengthen to $1,000 by January while the yuan will fall to 7 against the greenback.
“The continued devaluation of the Chinese yuan is what’s driving traders at the margin to buy bitcoin,” Hayes said.
Some market strategists along with Yue Zhong, a China-based market strategist at FXTM, expect that the value of yuan will continue falling and in the coming months the Chinese currency will be traded at seven to the dollar, a level it hasn’t seen since 2008.