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Bitcoin Price Rises as China Launches Crackdown on Wealth-Management Products

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by Polina Chernykh · 3 min read
Bitcoin Price Rises as China Launches Crackdown on Wealth-Management Products
Photo: bfishadow/Flickr

Bitcoin has reached its highest value in the past three months, while Chinese central bank is tightening its control over the wealth management product funds.

The price of bitcoin has started growing since early morning today, hitting US$685 on most bitcoin exchanges. It is currently hovering at about $700 mark.

Bitcoin’s value increased by 80% to US$777 in June, compared with its price at the end of last year. In August, however, the price dropped after the hack of the Bitfinex exchange, but then increased again.

The price has surged by 13% since the start of this month and escalated by 8.5% within the last week.

The cryptocurrency has reached its highest price in the last three months, owing to the growing demand from Chinese investors. Currently, China accounts for 90% of all bitcoin trading volume. Traders turned to bitcoin to diversify their assets, in view of the continued depreciation of yuan and other fiat currencies. Besides, virtual currency mining has also escalated in China due to the affordable equipment and electricity.

“Limited investment channels for Chinese investors drive them to seek all possible investment tools to preserve their asset value,” Victor Au, chief operating officer at Delta Asia Securities, told South China Morning Post.

“The search for more diversified channels has become more pressing after recent property cooling measures started to calm China’s housing frenzy and after last year’s Chinese stock market crash sapped speculators’ confidence.”

Meantime, some financial analysts say it is strict regulations imposed by the government on wealth management products that is stimulating traders to invest in digital currencies. Moreover, bitcoin gives investors more control over their assets.

As Bloomberg reported, Chinese central bank is conducting a trial monitoring of banks’ off-balance-sheet wealth management products under its macro-prudential assessment system.

According to Citigroup’s estimates, the country’s shadow-banking system could lock up about 13 trillion yuan or US$1.9 trillion in assets that had been exempt of government’s control so far. If part of these wealth management products was allocated into digital currency, it could drive the price of bitcoin further.

The China Banking Regulatory Commission, Bloomberg wrote, has been tightening regulation on wealth management products since 2014. As of June 30, Chinese banks held 26.3 trillion yuan of these products.

The central bank’s macro-prudential system assesses banks’ equity investments, loans, repurchase agreements, and calculates lenders’ overall levels of credit. Besides, it calculates individual banks’ risks, analyzes such factors as asset quality, and capital adequacy.

The products are currently not included in the central bank’s assessment framework and it is unknown when the People’s Bank of China will add them.

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