According to the latest information, we see that the price of the renowned crypto Bitcoin (BTC) has been changing upward in recent hours, but what does China have to do with the crypto’s performance?
More specifically, is this being caused by the Chinese rate cut?
Let’s see all the details of this below.
Summary
The connection between the rise in the price of the crypto Bitcoin (BTC) and China’s economic actions
At the time of writing, Bitcoin (BTC) is up from previous performance, and, in the same time frame, the first Chinese rate cut in 10 months took place.
Thus, one wonders whether China’s economic actions are not affecting, in this case positively, the traditional markets.
The People’s Bank of China (PBoC) cut its one-year and five-year lending rates by 10 basis points (bp) to 3.55% and 4.3%, respectively.Â
As a reminder, these rates are instruments used for loans to businesses, households and as a benchmark for mortgages.
Last week, major Chinese state-owned banks reduced rates on demand deposits by 5 basis points and by 15 basis points on three- and five-year term deposits. In addition, one basis point corresponds to one hundredth of a percentage point.
While financial conditions in China have eased, Western economies are adopting tighter monetary policies.
This situation reflects the loss of momentum and the threat of deflation in the world’s second largest economy. The largest cryptocurrency by market value was trading around $28,000 at press time, according to the latest data provided.
Due to the close economic correlation between Australia and China, the Australian dollar declined 0.7% against the US dollar, while China’s benchmark stock index, CSI, went from steady to downtrending.
The broader index of Asia-Pacific stocks, excluding Japan, fell more than 0.5%, while S&P 500 futures traded down 0.3%.
Rate cuts in China: problem or solution?
We see that the risk-averse attitude highlights investors’ uncertainty about the effectiveness of rate cuts in supporting the slowing economy, and the search for a more substantial stimulus package.
ForexLive analyst Justin Low said this could indicate that rate cuts are more of a problem than a solution to China’s recent economic woes.
Some cryptocurrency experts argue that more stimulus from China could offset the more aggressive policies of the US Federal Reserve, the European Central Bank and other financial institutions, and ultimately push risky assets higher.
In the latest edition of Macro Pulse, David Brickell, director of institutional sales at the crypto liquidity network Paradigm, had the following to say on the subject:
“Reports also suggest that China is preparing a 1 trillion yuan stimulus package. This is BIG news regarding global liquidity. If global liquidity is on the rise, bitcoin should start pumping strongly from here.”
Keep in mind that one trillion yuan is about $140 billion.
Glassnode’s predictions for the BTC cryptocurrency
Bitcoin (BTC) could face a period of “boring laterality” for a year and a half, according to a new forecast.
Analytics firm Glassnode, in its weekly newsletter “The Week On-Chain,” warns BTC holders of a “difficult” period ahead.
Specifically, after a 70% increase in the first quarter of 2023 and a more modest performance recently, Bitcoin (BTC) generates mixed views on its future price action.
Indeed, with the halving of block rewards scheduled for 2024, some expect it to rise significantly in the following year, while others believe it may take longer, perhaps until 2025, to reach a new all-time high.
According to Glassnode, there are signs of a typical pre-bull market phase, although long-term holders will have to be remarkably patient.
In addition, analysts have observed massive accumulation of Bitcoin by analyzing the “vibrancy” of supply, which describes the tendency of BTC holders to spend or hold their coins.
Specifically, the researchers stated the following:
“Currently, Liveliness is in a multi-year macro downtrend, having peaked in May 2021 when bear market first set in.
We can see a similar structure has formed to the 2018-20 cycle, as coins slowly but surely migrate into cold storage and are removed from the market by the HODLer cohort.”
