Bitcoin Set for Best Week Since June on Yuan Weakness Concern

(Bloomberg) -- Bitcoin headed for its biggest weekly jump since June as declines in the yuan boosted demand for the cryptocurrency.

The digital tender surged 8.5 percent this week to $684.23 as of 11:04 a.m. in Hong Kong. That’s the biggest gain since June, when prices skyrocketed as investors girded for the results of the U.K.’s Brexit vote.

Now the risk is yuan depreciation. China’s exchange rate has fallen for a fourth week against the dollar, and is trading near a six-year low, on speculation officials are tolerating faster declines ahead of a potential U.S. interest-rate increase by year-end. For Chinese people, buying bitcoin is one way to hedge against the yuan’s weakness amid capital controls.

“There is a premium in bitcoin pricing in China as a hedge against the yuan," said Jack C. Liu, Hong Kong-based chief strategy officer at OKCoin Co., one of the biggest Chinese exchanges for the cryptocurrency. “Strength is likely to carry into year-end."

Bitcoin is trading at 4,705.2 yuan on OkCoin, amounting to about a 1.4 percent premium over its dollar price. China accounts for about 90 percent of trading in the cryptocurrency.

Similarly, gold has also seen its yuan premium widen this month as the Chinese currency fell. Such weakness, along with investors’ concern about the nation’s property outlook, may bolster demand for bullion, according to Goldman Sachs Group Inc.

Bitcoin will rise above $700 before year-end amid strong Chinese demand and the possibility of unexpected events, such as Donald Trump winning the U.S. presidency, said Aurélien Menant, chief executive officer of Gatecoin Ltd. in Hong Kong.

“The outcome of the U.S. elections is likely to have an impact, as would the consequence of a Fed rate hike," said Menant. “A black-swan event in the coming months, which seems to be likely, could also drive bitcoin to all new highs. In the meantime, further yuan devaluation and interest among Chinese investors will continue the momentum."

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net. To contact the editors responsible for this story: Robin Ganguly at rganguly1@bloomberg.net, Sarah McDonald

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