China's onshore yuan closed at its strongest level since May 2023, trading at 7.0066 per dollar, amid a weakening US dollar. This development, typically bullish for bitcoin, has not lifted the cryptocurrency, which lingers below $90,000. Factors like thin year-end liquidity and ETF outflows are muting the expected rally.
China's currency strengthened notably on Thursday, reaching 7.0066 per dollar—its firmest close since May 2023—and approaching the key 7-per-dollar threshold. This marks a 5% appreciation against the US dollar since early April, driven by exporters converting dollar revenues into yuan ahead of year-end. Analysts point to over $1 trillion in offshore corporate dollars potentially returning to China, fueled by economic recovery signals, Federal Reserve rate cuts, and the yuan's own upward momentum, creating a reinforcing cycle.
The rally reverses long-standing pressures on the yuan, including trade tensions and capital outflows. Brokerages suggest this could be just the start; further Fed easing in 2026 might accelerate the yuan's gains if it outpaces expectations.
A softer dollar usually boosts bitcoin, making it cheaper relative to the reserve currency and bolstering its 'digital gold' appeal. Gold has indeed surged to record highs this month. Yet bitcoin has failed to break $90,000, trapped in an $85,000-$90,000 range despite three weekly attempts.
Several elements explain this disconnect. Holiday trading has thinned liquidity, heightening volatility without strong directional moves. US spot bitcoin ETFs recorded net outflows of over $825 million across five straight days, per SoSoValue data. Additionally, the Bank of Japan's recent rate hike to a three-decade peak has introduced uncertainty, even as the yen weakened post-decision, curbing risk appetite.
Analysts view the bullish outlook as delayed rather than dismissed. With dollar weakness possibly intensifying in 2026 and liquidity rebounding in January, bitcoin may yet respond to these macro shifts.
