The Impact of Chinese Capital Outflows on Bitcoin vs. Yuan Relationships: A Multi-Period Analysis

Abstract

We examine the relationships among Bitcoin (BTC), the Chinese Yuan (CNY), and Chinese capital outflows between 2014-2021. We find that BTC returns strongly comove with CNY returns after 2018Q1, while no significant BTC/CNY relationship exists before 2018Q1. Further, the strength of the BTC/CNY relationship increases throughout 2018 to the present date. Yet, this relationship strength cannot be explained by periods of ascending BTC prices, changes in crypto mining location, nor changes in the use of BTC "mining pools". Instead, we find that the strength of the BTC/CNY relationship is strongly and directly related to Chinese capital outflows. We find no similar relationship with a "bogey" currency, the Euro, implying that the capital outflows -to- BTC/CNY relationship is unique to China and its capital outflow environment. In total, our novel results suggest that BTC is used as part of a process to move economically significant amounts of capital from mainland China.