Last week, I put the massive buying pressure coming to bitcoin in context, but there is another — perhaps the largest — source of potential demand entering the scene.
We already know the Bitcoin ETFs, MicroStrategy issuing more shares to buy more bitcoin, Tether’s constant buying, and the halving will all be major sources of demand this cycle. For example, in the first two weeks of trading alone, the “newborn 9” accumulated 125,000 BTC. That has, so far, been offset by GBTC outflows, but it is unlikely that all GBTC holders are captive sellers who will get out ASAP. This outflow should start to wane in the coming weeks.
A somewhat unexpected development is emerging in China of all places. Readers of my content here and on bitcoinandmarkets.com won’t be strangers to what’s happening in China over the past couple of years. They are experiencing the end-of-an-economic-model transition. The China we have grown to know was built on debt, producing goods for over-indebted foreign customers. They are heavily dependent on globalization and a highly elastic monetary environment. That era is coming to an end, and the crash of the Chinese real estate market, and now their stock market, are visible signs of the end of that paradigm.
Source: @Schuldensuehner
On January 24, China Asset Management Company (China AMC), a gigantic fund manager and ETF provider in China, halted trading on their Nasdaq 100 and S&P 500 ETFs to stop the flood of money out of other funds and into these US-connected funds. On Tuesday, other US-connected ETFs on Chinese markets opened limit up, and had a 21% premium over NAV. The flight to safety is also affecting Chinese-based Japanese ETFs. Tuesday saw the China AMC’s Nomura Nikkei 225 ETF rise over 6% to a 22% premium.
Source: @Sino_Market
Chinese investors are in full-on panic mode, and the authorities are barring the door. It is only a matter of time until more Chinese investors start tapping bitcoin for its store-of-value and portability. Many Chinese are already familiar with bitcoin. China used to be a dominant source of demand for bitcoin until the CCP banned it in 2021.
While bitcoin is still officially banned in Mainland China, investors can still use exchanges like Binance and OKX. They can also buy OTC, person-to-person, or via off-shore bank accounts. Last year, Hong Kong very publicly opened back up to bitcoin. They have been following in lockstep behind US regulators giving Bitcoin the official blessing in Hong Kong. It is unlikely that Hong Kong authorities would make such a public push for legalizing bitcoin only to turn around the next year to ban it.
This morning, a piece from Reuters quotes a senior executive of a Hong Kong-based bitcoin exchange, who confirms this capital flight story. “Investment on the mainland [is] risky, uncertain and disappointing, so people are looking to allocate assets offshore. […] Almost everyday, we see mainland investors coming into this market.”
The source added, “If you are a Chinese brokerage, facing a sluggish stock market, weak demand for IPOs, and shrinkage in other businesses, you need a growth story to tell your shareholders and the board.”