According to influential cryptocurrency expert and founder of cryptocurrency exchange BitMEX, Arthur Hayes, the Chinese government’s stimulus spending could be the catalyst for Bitcoin to soar to new heights.

In a blog post, Hayes argues that rumors of the Chinese government’s plans to launch a $1.4 trillion stimulus package could prompt wealthy Chinese investors to move to Bitcoin as a hedge against currency debasement — despite official bans on Bitcoin trading in mainland China.

“All the stars are aligned for Beijing to print an insane amount of yuan. What’s the antidote for the plebs who are about to see a surge in lending that isn’t necessarily based on a stronger real economy?”

Hayes argues that despite the bans, Bitcoin trading in mainland China is booming, as investors take advantage of peer-to-peer trading methods offered by major exchanges like Binance and OKX to get around the restrictions.

The BitMEX founder also suggests that the ban on BTC/CNY trading pairs is essentially just an attempt by the government to reduce the usefulness of Bitcoin trading as an indicator of Chinese currency devaluation, noting that owning the cryptocurrency is still legal.

"Given that the Chinese government knows it can't ban Bitcoin, and owning Bitcoin and cryptocurrency is not illegal in China (contrary to what some financial media outlets claim), Beijing would prefer Bitcoin to be out of sight and out of mind."

Hayes points to historical data to support his theory that a Chinese currency devaluation will drive up the price of Bitcoin, highlighting Bitcoin's nearly 5x rise from $135 to $600 in 2015 following the devaluation of the yuan. He believes that if the Chinese government continues with its massive stimulus plans, the value of the yuan will likely fall, and wealthy Chinese investors will flock to Bitcoin again as a hedge.

While he believes Chinese investors will buy into Bitcoin, Hayes acknowledges that it may take some time for them to pull the trigger, perhaps waiting until the impact of stimulus spending on the yuan’s value becomes clear. In the meantime, Hayes says, investors may initially choose other investments, such as real estate.

China’s Stimulus Plans

Reuters reports that China is considering approving a plan to raise 10 trillion yuan in new debt as early as next week at a meeting of China’s top legislature, the National People’s Congress (NPC) Standing Committee. The debt would largely come in the form of special government bonds to be issued over three years.

The debt represents more than 8% of the output of China's economy, which has become increasingly fragile in recent years due to a massive, protracted housing crisis and soaring local government debt.

The decision was apparently timed to coincide with the US presidential election, giving the government some flexibility depending on who wins the election. The stimulus package could potentially be even bigger if Trump wins, as there are concerns within China that his promised tariff plan will hurt the Chinese economy.

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