It's entirely possible it might be the catalyst for a large unwinding. Let me just set up a hypothetical scenario:
Bitcoin prices begin to unwind (trigger: emotion? unknown unknown?).
Chinese holders of bitcoin, who have been using them to get out of the yuan and avoiding capital regulations, start selling, accelerating the problem.
Chinese WMPs (wealth management products) that may hold bitcoin start to default or go under, accelerating the deflation of the current Chinese debt and borrowing bubble.
Global market contagion risk from China causes markets to rethink what is going on? The US has been calling for a correction for months, and the VIX is stubbornly low. Central banks have interest rates very low but are trying to tighten, and if they tighten into weakness it might cause a recession.
How many Chinese buyers of BTC are buy-and-hold investors into BTC itself versus just using cryptocurrency as a transfer mechanism for real estate, commodities or fiat currency investments?
I'd say the causality is more likely to go in the opposite direction. A slowdown in China provokes a slowdown in capital flight via crypto which triggers the crash. It might actually be the canary in the coal mine of a global recession. Barring significant positive reform in Chinese capital markets as an alternative explanation, I am going to start getting scared when I see a crash in the Vancouver, BC real estate market coinciding with a crypto crash.
I would expect to see a surge and then a rapid drop off, but I think we've been in the surge for a while now. The surge reflects people not having faith in native Chinese markets, which has already been the case for most well-off, well-informed Chinese. They know their stock markets are a joke and that the government has been driving investment toward pointless building projects. The real estate market has been irrationally exuberant, in no small part because of the absence of alternative long-term savings vehicles such as interest bearing accounts or a reliable stock market. They also don't have complete faith in their government's respect for property rights and know having the option to flee abroad if things go south is invaluable.
And the PRB has been slowly ratcheting down the markup they pay on US dollars as an export subsidy, so the incentive to convert US dollars to renminbi relative to offshoring earnings via bitcoin or other channels has been declining over the past few years. Just to clarify what I mean because a lot of people don't realize this, but many Chinese exporters receive payment for goods in US dollars (or other foreign currency). The People's Republic Bank of China (their central bank) purchases those dollars with renminbi at a markup over the fair market value, basically giving the Chinese exporters a subsidy. That's part of why the PRB has such enormous US Treasury holdings. They bought so many US dollars that they couldn't invest them in anything other than US Treasuries. A billion dollars in cash is an asset. A trillion is an unmanageable inflation risk.
The PRB has been trying to move away from that model because they know it isn't long-term sustainable. So as that implicit subsidy declines, Chinese manufacturers receiving US dollars find alternative methods for converting their excess currency, such as BTC or other foreign currencies (e.g. the Canadian dollar), relatively more attractive.
The bottom line is that anyone who can afford to expatriate their capital has been doing so at the maximum viable rate for a long time now. A slowdown would simply reduce the amount that is available to expatriate, decreasing the US dollar -> BTC purchases and accelerating the BTC -> hard foreign assets such as real estate, reducing the total market cap for BTC. It's also possible the PRB might react to a slowdown by once again increasing the implicit export subsidy, which would divert funds from BTC transactions back into renminbi and further accelerate a crypto crash.
Bitcoin prices begin to unwind (trigger: emotion? unknown unknown?). Chinese holders of bitcoin, who have been using them to get out of the yuan and avoiding capital regulations, start selling, accelerating the problem. Chinese WMPs (wealth management products) that may hold bitcoin start to default or go under, accelerating the deflation of the current Chinese debt and borrowing bubble. Global market contagion risk from China causes markets to rethink what is going on? The US has been calling for a correction for months, and the VIX is stubbornly low. Central banks have interest rates very low but are trying to tighten, and if they tighten into weakness it might cause a recession.