The demand for Bitcoin is expected to surge as a result of China's new capital control regulations that restrict overseas investment by Chinese firms, similar to the one that the Chinese government had imposed on wealth management products (WMPs) in October, analysts said.
A report by cointelegraph.com said that the series of regulatory measures were introduced by government in October, which was aimed at managing the country's S13 trillion worth of WMPs.
According to the report, the price of Bitcoin immediately increased, surging by three percent, after the People's Bank of China announced the policy last month.
But this month, the State Council is set to implement stricter regulations on overseas investment with the aim to support the economy and prevent local companies from taking funds out of the country.
Based on documents submitted by the State Council, the Chinese government will pass a set of regulatory policies in the coming weeks.
According to sources, multi-billion dollar deals that were formed and established overseas are the main concern of government, as some Chinese firms have rising debt to EBITDA ratio (earnings before interest depreciation and amortization). EBITDA is the rating used by credit agencies to evaluate the probability that a company may default on issued debt.
In addition, the government believes that limiting the companies' funds or capital within the country is important to a strong economy.
Official data showed that the total overseas direct investment rose more than 50 percent to $145.9 billion in the first nine months of 2016 compared to the same period from last year, The Wall Street Journal reported.
Once the new regulations take effect on overseas investment, companies will be prevented from close investments and acquisitions that are worth more than $1 billion, the report said.
The new capital control, which will be released before the end of 2016, will also apply to companies that already have invested overseas which exceeded $1 billion.
Analysts and financial media sources said that as soon as the new regulations are passed, the demand for Bitcoin will surge significantly, and the impact on the price of the digital currently could be the same as the effect that the WMP crackdown had on Bitcoin.
The price of Bitcoin is also expected to surge three to five percent and its price will likely increased by another $20, based on current average market price.