Bitcoin price has seen a record inverse correlation with the Chinese yuan (CNY) this week, according to an analysis from Bloomberg on Sept. 6. This suggests that investors are using the digital currency as a hedge against the yuan’s falling value.

Bitcoin/CNY correlation chart. Source: Bloomberg

Weakening yuan causes price premium on bitcoin in China

Further evidence that Bitcoin is being used as a hedge in China can be seen in the higher prices being paid in local exchanges when the yuan fell. According to London School of Economics researcher, Dr. Garrick Hileman:

“You can see it in the premium price paid sometimes for Bitcoin in exchanges like Huobi that primarily cater to Chinese.”

Factors such as the ongoing trade war with the United States and central bank monetary easing policy are contributing to a weaker CNY/USD. However, a court ruling in July that Bitcoin was a protected virtual asset and legal in China, has added to its lure as a hedge.

In addition, businesses in Hong Kong are also increasingly adopting Bitcoin as a form of protest.

Inverse correlation has increased as trade relations have deteriorated

The correlation first became more evident in April and May, amid rising tensions in the trade war between China and the U.S. The current magnitude of the inverse movement is similar to that of gold against Brent crude-oil futures. Gold prices also tend to rise when crude-oil futures are dropping.