As China faces continued economic struggles, Bitcoin could become an attractive destination for capital fleeing the country.

The new year has brought little relief to Chinese assets, which remain under pressure as the nation grapples with a financial meltdown that may fuel the ongoing Bitcoin (BTC) bull market.

On Tuesday, the Chinese yuan (CNY) dropped to 7.32 per U.S. dollar, marking its lowest point since September 2023, according to TradingView data. The yuan has fallen by 0.4% this month, continuing its three-month slide, despite efforts by the People’s Bank of China (PBOC) to calm investor fears over potential U.S. tariffs under President-elect Donald Trump.

The CSI 300 index, which tracks blue-chip stocks in mainland China, hit a new low on Monday, while the ChiNEXT Index, which tracks small- and medium-sized Chinese growth companies, has fallen 8% since the end of December, according to TradingView.

In addition, the yield on China’s 10-year government bonds has plunged to 1.6%, a striking drop of 100 basis points compared to a year ago. This drop contrasts with rising yields in developed markets, particularly the U.S., and reflects growing worries over persistent deflation in China.

These economic factors are expected to contribute to capital outflows from China, which could drive increased demand for alternative assets like Bitcoin, according to analysts at LondonCryptoClub.

“China seems to be allowing its currency to weaken without intervening, which will likely lead to further capital flight. Bitcoin is a logical destination for some of those outflows, especially with capital controls making it difficult to move funds out of China through traditional means,” the founders of LondonCryptoClub told CoinDesk. “In 2015, when China devalued its currency, Bitcoin’s price surged over threefold.”

The PBOC has mainly used its daily reference rate and liquidity measures to manage the yuan’s decline, instead of direct market intervention. On Monday, the PBOC set the daily reference rate stronger than the key 7.20 level per USD in an effort to prevent further bearish sentiment toward the yuan. This reference rate has been the PBOC’s primary tool for managing market expectations since Trump’s election.

The PBOC has also taken measures to tighten liquidity in offshore yuan markets, with the overnight interbank interest rate in Hong Kong climbing to 8.1%, the highest level since June 2021, as part of efforts to stabilize the currency.

However, Bitcoin traders need to be cautious of a potential direct intervention from the PBOC, particularly if it involves selling U.S. dollars to prop up the yuan. Such an intervention could strengthen the U.S. dollar, which may limit potential gains in dollar-denominated assets like Bitcoin.

Whenever the PBOC sells U.S. dollars to support the yuan, it also buys dollars from other currencies to maintain its dollar reserves, causing financial tightening that could impact risk assets such as Bitcoin.

The U.S. dollar index has already surged from 100 to 108 in just three months, largely due to rising Treasury yields. If the dollar continues to strengthen, it may dampen risk appetite, putting a cap on further Bitcoin price growth.