Is your crypto portfolio ready for the full force of the Digital Yuan?

Central Bank Digital Currencies may take months to materialize in the US, the European Union, or Japan, however, the People’s Bank of China is eager to gain a first-mover advantage here. On Friday, as a part of the fast track digitization of the Yuan, the PBOC published draft legislation to turn the digital Yuan into legal tender and ban the private sector from issuing cryptocurrencies. The digital Yuan is all set to go live before the 2022 Winter Olympics. The progress is on point as nearly $1.3 Million worth of Digital Yuan was transferred in test cities from October 12 to October 18. 

This move will possibly have a significant impact on portfolios of several crypto traders who are all in, or heavily invested in Bitcoin. This is evident from East Asia’s role in the world’s cryptocurrency markets and its importance for retail traders cannot be undermined.

Cryptocurrency Adoption across the world || Source: Chainalysis

Based on data from Chainalysis, China ranks fourth in the world on cryptocurrency adoption. The full force of the Digital Yuan may possibly be too much to handle for most retail trader’s portfolios, due to East Asian, more specifically Chinese influence on Bitcoin’s price. The impact on price is significant as regional BTC flows are primarily from Eastern Asia, and 56.59% of flows between different regions originate in China.

Regional Flows of Bitcoin || Source: Chainalysis

The launch of the Digital Yuan and recognizing it as legal tender, with specifically designed wallets would lead to exponential adoption, and Bitcoin adoption and transfer within the region is sure to drop, at least 50% relative to the current numbers within the first few quarters of launch. 

The latest news on the draft law may affect miners’ sentiment directly. BTC mining pools and farms based in China control 66 percent of global Bitcoin computer power. In the past two years, miners have been HODLing Bitcoin for driving prices upwards, however, a fear of a looming drop may lead to increased sell-side pressure. With increased Bitcoin inflow to exchanges, and miners selling their Bitcoin, the price may drop closer to fair value soon enough. To protect your portfolio from this possible drop, forget “Go Big or Go Broke”. Instead, it would be ideal to limit exposure to Bitcoin, based on risk appetite. If over 10% of your portfolio is invested in Bitcoin, re-evaluate. 

Several crypto influencers are signaling the need for a rebalanced portfolio. Investor and trader Quiten Francois recently tweeted about his top 3 cryptocurrency holdings. 

Source: Twitter

If you have less than 10 altcoins in your portfolio, it may be time to look at the top 25 altcoins, based on market capitalization. Altcoins like $FIL, $LINK, and $DOT are currently profitable with returns of 10-20% in 1 week. Top Altcoins based on their performance past 7 days are ETH 8.17%, LINK 13.41%, LTC 22.89%, FIL 28.9%. Few of the other altcoins in the top 25, based on market capitalization are currently running negative returns and it may be an ideal time to rebalance your portfolio before the full-force of the Digital Yuan hits Bitcoin.