BTC/USD: Bitcoin Prices Stabilize Amid China Regulatory Uncertainty

Bitcoin prices stabilized over the weekend, although concerns over China’s yuan policy kept demand on the mainland subdued compared to recent months.

The BTC/USD exchange rate edged up 0.5% to $830.61 at 1:39 pm on the Bitcoin Price Index (BPI). Prices traded within a $20 band, hitting a session high of $839.29 and establishing a low of $819.14.

Prices sunk to more than one-month lows earlier this week, an extension of selloff that began on January 5 following a decision by Chinese regulators to lower the yuan’s reference rate. As a result, the offshore value of the yuan surged at its fastest pace against the dollar in a year.

Beijing’s guidance of the yuan triggered bitcoin’s biggest flash crash in two years, highlighting the increasingly divergent relationship between the pair. For mainland investors, bitcoin is a virtual hedge against yuan instability, and has been used to diversify away from traditional Chinese assets.

Virtual outflows present another headache for the People’s Bank of China (PBOC), which is trying to tighten capital controls at a time of greater economic instability. The PBOC has been highly critical of bitcoin, having issued an official warning on dealing in the virtual currency back in 2013. However, policymakers stopped short of banning it outright, and have largely remained on the sidelines of the bitcoin debate over the past three years.

Bitcoin price action has been highly volatile since the start of the year, but has established tighter ranges for most of the week. Amid the fluctuations, the BTC/USD hit a low of $752.11 on January 11. Since the selloff began, prices rose as much as $942.06 on January 8, according to CoinDesk.

Efforts by Chinese regulators to more closely monitor bitcoin activity could trigger more volatility in a market that has achieved large mainstream appeal over the past 12 months. Bitcoin was by far the best performing currency of 2016, having gained 125% against the dollar.

It’s anybody’s guess how the PBOC will intervene in the bitcoin market, if at all. Analysts suggest policymakers could move to eliminate margin trading or require a minimum fee be applied to all bitcoin transactions. In theory, these moves would lessen speculation in the cryptocurrency.

Amid the suspense, bitcoin demand in India remains as robust as ever. On the subcontinent, bitcoin prices reached a record high of $1,080 earlier this week, with observers noting consistent growth in daily trading volumes.

Indian traders have been flooding bitcoin as the circulation of the national currency dries up. Prime Minister Narendra Modi’s demonetization campaign to curb illegal “black money” activity included removing high-denomination notes from circulation.

BTC/USD Exchange Rate (CoinDesk BPI)

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Sam Bourgi is a financial market analyst for economiccalendar.com. He has more than six years of progressive experience in economic and financial analysis, research consulting and sectoral analysis. As a published author in government, peer-reviewed, online and industry sources, he has developed a fundamental approach to the financial markets with a broad focus on stock indices, commodities and the technology sector. He earned his Bachelor’s Degree from the University of Windsor and Master’s degree from McMaster University.