Leading analysts state that the Chinese foreign exchange reserves have likely fallen between the range of $80 to 100 bln in October. Considering the value, experts state that the devaluation of the yuan is presumed and thus, the demand for Bitcoin will most likely surge again.
Jens Nordvig, founder and CEO at Exante Data, a prominent proprietary data and innovative analytical solutions provider, recently stated in an open letter to its clients that the foreign exchange market of China may be in trouble.
“Last week, our proprietary real-time indicators detected intervention (CNY buying / USD selling) of US$19.5 billion. We have not seen such a large imbalance in the FX market since the first week of January.”
It is important to note that in the first week of January, the entire financial market of China was in chaos, as the Shanghai Stock Exchange suffered from a plunge in value, dropping from over 3.5 mln to around 2.6 mln.
If the Chinese market experiences a similar imbalance at the beginning of 2017, Nordvig emphasizes that investors should expect a massive drop of $80 bln.
“We expect a dramatic drop of around $80 bln. This could be a wake-up call. A drop of that magnitude will be nearly as dramatic as the falls around January 2016 and August 2015,” stated Nordvig.
Moreover, the Chinese yuan has depreciated quite substantially over the past few weeks. The devaluation of the yuan, in correlation with the FX market drop, will lead to major market panic most likely in mid-November.
Impact on Bitcoin Price
When the Chinese central bank announced various regulatory frameworks on WMPs, the price of Bitcoin surged almost immediately, breaking a multi-month high of $750.
A major drop in the FX market of this magnitude could potentially surge the demand for Bitcoin in the short term, allowing Bitcoin to recover its price. If the Chinese yuan continues to devalue due to the weakening FX market, it will most likely lead to a price surge for Bitcoin once again.