Potential positive impact of monetary stimulus in China
Many commentators in the crypto space were pointing to a lowering of interest rates last week by the Federal Reserve in the United States as being a positive development for the pricing of digital assets. However, the introduction of a stimulus package to revive the Chinese economy may also have a role to play.
Stimulus package
Bloomberg reported on Sept. 24 that People’s Bank of China Governor Pan Gongsheng had cut a key short-term interest rate. Furthermore, the Bank of China governor plans to implement a reduction in the reserve requirements that are applied to the country’s banks. The Reserve Requirement Ration (RRR) will be cut by 50 basis points, which will mean that $142 billion will be freed up for new lending.
Additionally, a package of measures has been introduced to rejuvenate China’s beleaguered real estate market, lowering the borrowing costs related to $5.3 trillion in mortgages.
Bullish for crypto?
Jamie Coutts, chief crypto analyst at financial research platform Real Vision, took to X to comment on the development. Coutts wrote:
“The bottom is in for global central bank liquidity for this cycle. Sit back and watch the other CBs fall into line. In a credit-based fiat fractional reserve system, debasement is a feature, not a bug.”
Coutts signed off with a “Bitcoin” hashtag, with the inference that the development will have positive implications for Bitcoin. Similarly, market analysts at Singaporean crypto-asset trading firm QCP Capital perceive the move as being bullish for crypto and risk assets more generally.
QCP Capital analysts stated:
"We believe more easing is coming from the People's Bank of China (PBoC), and they have communicated as much, and combined with the U.S. Federal Reserve joining the global cutting cycle, all major central banks, except Bank of Japan, are now ready to inject more liquidity into the market. The macro space continues to look more and more bullish for risk assets, including crypto."
Taking that consideration further, the QCP Capital analysts suggest that market participants in the crypto space may be caught off guard by a resultant uptick in crypto pricing, stating:
"We know how explosive crypto prices can be, and with so many bullish catalysts, we think the next move higher will leave many people surprised and sidelined.”
Fed rate cuts
Many market commentators were similarly enthused last week following an announcement in the U.S. by Jerome Powell, Federal Reserve Chairman, of a 50 basis point rate cut, with the suggestion that further cuts may be implemented going forward.
However, not all market pundits are of the same view. Some believe that small interest rate cuts occurring in an overall high rates environment won’t move the needle and that it’s only in a zero rates environment where Bitcoin and crypto skyrocket.
Arthur Hayes, co-founder of BitMEX and Chief Investment Officer (CIO) at the Maelstrom Fund, asserted in his keynote speech at TOKEN2049 in Singapore last week that he wasn’t enthusiastic about rate cuts driving crypto.
“While I think a lot of people are looking forward to a rate cut, meaning that they think the stock market and other things are going to pump up the jam, I think the markets are going to collapse a few days after the Fed’s rates,” he stated.
Markets didn’t collapse subsequently although it seems that they are responding to this latest monetary stimulus introduced by China.
