China’s market and yuan meltdown could usher in Bitcoin-Trump rally 2.0

The start of 2025 has seen China’s market and currency woes ensue, as analysts claim these struggles could lead to a “second-term” Bitcoin (BTC) bull run. The largest crypto by market capitalization has gone back to trading over $100,000 after going through price corrections in December.

According to data from Trading Economics, the Chinese yuan (CNY) recently fell to its lowest level since September 2023, at 3.22 per U.S. dollar. This marks a continued decline, with the yuan dropping 0.4% this month and extending its three-month losing streak. 

The People’s Bank of China (PBOC) has increased its efforts to stabilize the currency, but economic tensions ahead of Trump’s January 20 inauguration present challenges. As noted by Reuters, the PBOC warned fund managers against chasing a bond rally as it prepares to launch a new stimulus effort to revive the economy.

Yuan depreciation sparks bond, stock market pressure

Analysts believe the yuan’s struggles are compounded by falling yields on Chinese government bonds. The yield on the 10-year Chinese government bond recently dropped to 1.6%, down 100 basis points from a year ago. This is in stark contrast to rising yields in the US. 

Strategists from BNP Paribas predict the yuan could reach 7.45 to the dollar by the end of 2025, while Nomura forecasts a drop to 7.6 by May. The predictions were also supported by JPMorgan Chase, which expects the currency to weaken further, with the offshore yuan potentially dropping to 7.5 in Q2.

Chinese stock market investors are also feeling the heat of the jurisdiction’s economic turmoil. On Monday, the CSI 300, which tracks blue-chip stocks, fell to its lowest level since September. 

According to TradingView, the ChiNEXT Index, a gauge for innovative and high-growth small and medium-sized enterprises (SMEs), has dropped 8% since the start of December.

“Once 7.3 is gone, I doubt there are many speed bumps along the way,” said Mingze Wu, a currency trader at Stonex Financial. “It’s like a dog finally caught its own tail.“

However, analysts caution that the PBOC will likely avoid a rapid, disorderly devaluation of the yuan to prevent further financial instability. The central bank still controls the currency’s onshore trading range, which is currently pegged at levels stronger than 7.2.

Bitcoin and crypto markets prepare for an incoming rally 

Meanwhile, there’s a growing sentiment in the crypto market that China’s economic struggles could start another bull run. Trading experts have drawn similarities between China’s economic instability and Bitcoin’s price surge, expecting the events to unfold again. 

In 2015, China devalued the yuan, and Bitcoin saw a dramatic increase, trading more than three times higher in response. The LondonCryptoClub founders pointed to this as a potential outcome again: “When China devalued in 2015, Bitcoin promptly traded over 3x higher.”

“China is on the edge of collapse and their 10-year bond is a reflection of how broken their economy has become,” an economist pointed out on social media platform X. They also predict that China will be forced to ease its monetary policy in 2025. “The country has to ease or it’s game over,” they added. 

Yes. China is on the edge of collapse and their 10 year bond is a reflection of how broken their economy has become.

The country HAS TO EASE or it's game over. Even though the liquidity will NOT help, it will boost other markets, like #Bitcoin, as capital continues to flee the… pic.twitter.com/pxgRvKxH3T

— Micro2Macr0 (@Micro2Macr0) January 3, 2025

Even though the liquidity boost may not solve China’s problems, it could fuel demand for alternative investments like Bitcoin as capital flows out of China.

LondonCryptoClub founders agree with the idea, noting that China’s decision to let the yuan slide without defending it could accelerate capital outflows. 

“China appears to be letting the currency slide and no longer defending it, allowing the peg to crawl if not an outright devaluation,” they said in a recent interview. “This will accelerate capital outflows from China, which we’re seeing with Chinese stocks under pressure. Bitcoin will be an obvious destination for some of those flows.”

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