Chiara Bianchi
China intensified its monetary and fiscal stimulus efforts on Wednesday, aiming to boost domestic consumption and counteract the growing economic strain from trade tensions with the United States. Historically, liquidity injections by major central banks have fueled gains across various risk assets, including bitcoin.
Expansive economic policies have often aligned with bullish trends in cryptocurrency markets. A study by S&P Global revealed that both crypto rallies and downturns have coincided with periods of monetary loosening and tightening.
In September 2024, Bitcoin surged 12.3%, marking one of its strongest performances for the month. This rally occurred alongside China’s previous stimulus measures, which included:
- Interest rate cuts to stimulate borrowing
- Lower reserve requirements for banks to increase liquidity
- Support for housing and equity markets
According to TradingView data, Bitcoin’s price has maintained a positive correlation with the People’s Bank of China’s (PBOC) balance sheet over the past eight years.
How China’s Stimulus Could Impact Alternative Assets
A Nexo spokesperson emphasized that past liquidity injections by China have flowed into alternative assets, stating: “When China increased monetary stimulus in 2015 and 2020, excess liquidity found its way into risk assets, including cryptocurrencies.”
However, they also warned that China’s strict regulatory environment might limit direct participation in crypto markets. Instead, capital may shift into state-backed digital assets or traditional safe havens like gold.
On Wednesday, China’s government work report outlined its economic priorities, including:
- A 5% GDP growth target
- A 4% fiscal deficit goal
- Strategies to stimulate private consumption
Despite these measures, Nansen Principal Research Analyst Aurelie Barthere noted that China’s economic trajectory remains moderate, rather than booming. She stated: “China’s developments still don’t carry as much weight in crypto markets as U.S. policy decisions, despite positive signals regarding AI investments.”
Speaking at China’s annual parliamentary meeting, Premier Li Qiang warned that global economic shifts are happening at an accelerated pace. The U.S.-China trade war, initiated under President Donald Trump, continues to pose risks to China’s manufacturing sector. Additionally, weak domestic consumption and a struggling property market have made China’s economy increasingly fragile.
Bitcoin’s Outlook: Volatility Ahead?
Market analysts remain cautious regarding risk asset performance in the coming months.
André Dragosch, Head of Research at Bitwise Europe, highlighted that: “Bitcoin’s price movement is heavily influenced by global growth expectations, which have been revised downward due to ongoing tariff uncertainties.”
Richard Ptardio, a financial markets analyst, also warned of potential volatility, particularly with upcoming U.S. inflation data and the Federal Reserve’s next interest rate decision. He noted: “Investors should prepare for market turbulence. A prolonged consolidation period for Bitcoin may be the most likely scenario in the months ahead.”
As China continues its monetary stimulus efforts, its impact on crypto markets will largely depend on how liquidity flows are directed and whether global macroeconomic concerns ease in the coming months.
