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Is China Making a Strategic Shift to Bitcoin After Gold’s Success?

By:
James Hyerczyk
Updated: Jun 11, 2024, 09:49 GMT+00:00

Key Points:

  • The PBOC stops buying gold after 18 months, possibly eyeing Bitcoin next.
  • Bitcoin's rising appeal as a hedge against a weakening dollar attracts China.
  • Loosening global regulations may enable China to strategically re-enter crypto markets.
BTC BULL 2

China’s Potential Re-entry into the Crypto Market: A Strategic Move?

Recent developments hint at a potential strategic shift by China in the cryptocurrency market. With the People’s Bank of China (PBOC) halting its gold purchases in May after an 18-month spree, speculation abounds about Beijing’s next move. Could China be preparing to re-enter the crypto market, particularly Bitcoin? While timing remains uncertain, several factors suggest this possibility is worth considering.

Gold Purchases Paused: A Strategic Shift?

The PBOC’s cessation of gold purchases has raised eyebrows. Ole Hansen, Saxo Bank’s head of commodity strategy, noted that China’s decision to pause buying at record prices highlights a human reluctance to overpay. Despite this pause, China remains a significant player in the gold market, having purchased a record 7.23 million ounces in 2023, according to the World Gold Council. However, this halt might indicate a strategic shift rather than a simple market reaction.

Bitcoin’s Appeal Amidst a Weakening Dollar

Bitcoin’s appeal as a hedge against the weakening U.S. dollar has grown, with notable figures like Brock Pierce, co-founder of Tether, predicting China’s return to the crypto market. Pierce’s insights, shared with the South China Morning Post, suggest that China’s embrace of digital assets is “inevitable.” As the Federal Reserve indirectly acknowledges gold’s supremacy over the dollar, Bitcoin presents an alternative asset class that could diversify China’s holdings.

The Role of Regulatory Arbitrage

China’s potential re-entry into the crypto market might be influenced by regulatory arbitrage. Countries like the UK and India have been loosening regulations to attract crypto innovation. China, known for its strategic economic maneuvers, could leverage this trend to its advantage. By waiting for a significant price correction in Bitcoin, China could enter the market at more favorable levels, thus maximizing its investment potential.

Trump’s Crypto Advocacy and Its Impact

Adding another layer to this narrative is former President Donald Trump’s vocal support for cryptocurrencies. During a fundraiser in San Francisco, Trump positioned himself as a “crypto president,” criticizing regulatory efforts under the Biden administration. His stance has garnered support from notable tech and crypto investors like David Sacks and Chamath Palihapitiya. This political backing could further influence market conditions, potentially benefiting China if it chooses to re-enter the market during a favorable political climate.

A shift in focus by China from gold to BTC could be an altogether different story. Demand from China could materially dent supply and drive BTC toward 100k, says Bob Mason, Crypto Analyst at FXEmpire.com.

Market Forecast: Bullish Yet Cautious

While the timing of China’s re-entry into the crypto market remains speculative, the strategic pause in gold purchases and the appeal of Bitcoin as a hedge against a weakening dollar suggest a bullish outlook. However, China’s investment strategy typically avoids chasing assets at their peak. Therefore, a more cautious approach, possibly waiting for a significant market correction, seems likely.

Conclusion

In conclusion, China’s potential return to the crypto market, particularly Bitcoin, is a scenario that merits close monitoring. The PBOC’s strategic pause in gold purchases, coupled with the broader economic context and regulatory trends, indicates a significant shift may be on the horizon. Investors should remain vigilant, as China’s moves could significantly impact the global crypto landscape.

The US BTC-spot ETF market has supported BTC at current levels. A shift in focus by China from gold to BTC could be an altogether different story. As of June 7, the US BTC-spot ETF market held 883,978 BTC. Demand from China could materially dent supply and drive BTC toward 100k.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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