The ongoing Bitcoin price rally could be boosted by a meltdown in China’s market, according to one crypto analyst.

As China’s economic turmoil deepens, Bitcoin could emerge as a key beneficiary, drawing in capital from fleeing investors.

The start of the year has offered no respite for Chinese assets, with markets continuing their downward spiral. This trend could accelerate the current Bitcoin (BTC) rally, attracting capital from China looking for safer havens.

On Tuesday, the Chinese yuan (CNY) weakened to 7.32 per U.S. dollar, its lowest level since September 2023, according to data from TradingView. The yuan has dropped 0.4% so far this month, extending a three-month losing streak, despite efforts by the People’s Bank of China (PBOC) to stabilize market sentiment amid fears of looming U.S. tariffs under President-elect Donald Trump.

On Monday, the CSI 300, which tracks the top 300 stocks in China’s mainland exchanges, fell to its lowest point since September. The ChiNEXT Index, which tracks China’s innovative small and medium-sized businesses, has also dropped by 8% since the start of December, according to TradingView.

Meanwhile, the yield on China’s 10-year government bonds has plummeted to 1.6%, a steep decline of 100 basis points from last year, contrasting with rising bond yields in advanced economies, particularly the U.S. This decline points to increasing fears of deflation within China’s economy.

These deteriorating economic conditions are likely to trigger more capital flight, with Bitcoin potentially receiving a significant influx of investment as Chinese investors seek alternatives, according to LondonCryptoClub.

“China’s apparent decision to let the currency slide, without intervention, will only increase capital outflows. Bitcoin is an obvious destination for some of that capital, especially with the capital controls that make it harder to move money out of China through traditional methods,” said the founders of LondonCryptoClub in a statement to CoinDesk. “We saw a similar pattern in 2015 when China devalued the yuan, and Bitcoin saw a dramatic increase in price.”

The PBOC has primarily relied on its daily reference rate and other liquidity measures to try to curb the yuan’s decline, rather than directly intervening in the markets. On Monday, the PBOC set the reference rate stronger than the critical 7.20 per USD level in an attempt to curb bearish sentiment toward the yuan. This rate has been a key tool for managing market expectations, particularly since Trump’s election.

Additionally, the PBOC has taken steps to tighten liquidity in offshore yuan markets. The overnight interbank interest rate in Hong Kong surged to 8.1%, its highest level since June 2021, signaling efforts to provide support for the currency.

However, Bitcoin traders should remain alert to the possibility of direct intervention by the PBOC, especially if it involves selling U.S. dollars to stabilize the yuan. Such action could drive up the U.S. dollar, potentially putting a lid on gains in Bitcoin and other dollar-denominated assets.

Whenever the PBOC intervenes to defend the yuan by selling U.S. dollars, it simultaneously buys dollars from other currencies to maintain its reserve levels. This process often leads to tighter financial conditions, which could affect risk assets like Bitcoin.

The U.S. dollar index has already surged from 100 to 108 in the past three months, largely in response to rising Treasury yields. If the dollar continues to strengthen, it could dampen appetite for riskier assets like Bitcoin, potentially limiting the upside in BTC’s price.

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