Bitcoin Demand Seen to Rise as China Restricts Gold Importation

The demand for Bitcoin is expected to rise as China imposed new restrictions on gold importation starting Dec. 1, in a bid to prevent capital from leaving the country, according to an article by cointelegraph.com.

In the past months, the Chinese government and the central bank implemented a crackdown on wealth management products (WMPs), foreign investment and the transfer of money, as part of a strategy to prevent the yuan devaluation.

Part of this strategy is the restriction on the importation of gold, which the government hopes to achieve by disapproving the licenses and requests of banks and financial institutions to import gold from international sellers.

But even before that, China's central bank also had a policy restricting the exportation of gold, which resulted in the devaluation of gold in the Chinese market as Chinese investors and traders were incapable to monetize their gold.

In the coming weeks, the government is expected to strictly control the importation of gold to keep the yuan from leaving the country. This year, the yuan had already dropped 5.8 percent against the dollar and China is making all efforts to recover its value.

In 2014, the local Chinese gold market was opened to foreign investors by the People's Bank of China, by authorizing the Shanghai Gold Exchange to establish an international. Daily gold auctions were later launched by the Shanghai Gold Exchange a year later, which allowed investors to buy large amounts of gold easily.

For investors, traders and financial companies, gold is often regarded as a safe asset, due to its low volatility rate and high global exchange rate. In countries like China where foreign investments are highly regulated, gold is a reliable asset.

The restrictions on gold importation may lead to a surge in the demand for gold. However, the regulations on its exportation may prevent traders and investors from monetizing it for foreign reserve currencies. Hence, they are likely to look for other assets with the same liquidity and good exchange rates as gold.

For some investors and traders, Bitcoin is seen as a possible investment method and wealth protection. China has a large number of Bitcoin miners which make for a huge over-the-counter market for Bitcoin. Bitcoin presents as an alternative to hold, since the digital currency is exempted from regulations on money transmission.