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Chinese gov’t fires up the printer — How will it impact Bitcoin price?

Recent news headlines have focused on the struggling Chinese economy and its potential risks to global growth. The weakening economic activity and credit flow in the region are causing concerns among analysts, who question whether the measures taken by the Chinese government are enough to address the underlying structural problems.

In July, industrial output in China increased by 3.7% compared to the previous year, slower than the growth rate in June. Additionally, Chinese banks issued 89% fewer new loans in July compared to June, the lowest since 2009.

Aside from the impact on global economic growth, there is concern among investors that the turmoil in China’s real estate market could have a ripple effect on the US dollar and commodities. This could create unfavorable conditions for Bitcoin (BTC).

Bitcoin traders are particularly concerned about potential repercussions from the fluctuations in the Chinese stock market. This unease stems from historical price trends and a shift in investor sentiment towards avoiding risky markets during times of economic uncertainty.

Bitcoin/USD index (purple, left) vs. China CSI 300 Index (blue, right). Source: TradingView

As shown in the chart above, there is usually a correlation between Bitcoin’s price movement and the overall movement of China’s stock market. However, these movements can be predicted or happen with a time lag. On August 28, the 30-day correlation between the CSI 300 Index and Bitcoin/USD reached an unusually high 70% level.

Can China Instill Confidence in Investors?

The recent surge in the Chinese stock market seems to be driven by measures announced by China on August 27. These measures include special refinancing terms for the real estate sector, reduced fees for share buybacks, lower leverage margins for trading firms, heightened regulatory scrutiny for new stock offerings, and limits on selling below the IPO price.

However, these measures have not had the intended effect of halting the downward trend in the stock market, according to Ting Lu, chief China economist at Nomura Holdings. There are signs of foreign capital leaving Chinese stocks, with global funds selling around $1.1 billion worth of shares on August 28 alone.

The question remains why China is not implementing effective economic stimulus packages. One possible reason is the declining value of the yuan against the US dollar, which has reached historically low levels. Despite incentives like tax breaks and monetary distributions, there is a negative impact on the purchasing power of the yuan, leading to slower economic growth in China.

A Strong US Dollar is Bad News for Bitcoin’s Price

The outflow from the Chinese stock market seems to benefit the US stock market and strengthen the US dollar. This could pose a challenge for Bitcoin, as it is priced in dollars and competes as an alternative store of value. If the US dollar outperforms other fiat currencies, it may hinder the anticipated cryptocurrency rally during a global economic downturn.

However, market dynamics can change quickly. The value of Bitcoin as an independent and alternative hedge remains valid, regardless of its current inability to reclaim the $29,000 support.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Key Points:

  • China’s struggling economy poses risks to global growth, impacting Bitcoin.
  • Fluctuations in the Chinese stock market can affect Bitcoin’s price.
  • Recent surge in the stock market is driven by measures announced by China.
  • China’s economic stimulus packages may fall short to address structural problems.
  • The declining value of the yuan affects China’s economic growth.
  • Outflow from the Chinese stock market strengthens the US dollar.
  • Bitcoin’s value as an independent hedge remains despite current challenges.
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