Bitrabo Editorial
Bitcoin (BTC) may see positive effects from the People’s Bank of China’s (PBOC) recent reduction of the reserve requirement ratio (RRR) by 50 basis points.
China’s Economic Stimulus: How Will It Impact Bitcoin?
On September 24, 2024, the PBOC announced a cut to the RRR by 50bps. This action mirrors a similar decrease by the US Federal Reserve on September 18, which also involved a 50bps cut in interest rates.
According to cryptocurrency analyst Jamie Coutts, this reduction will inject approximately $113 billion into China’s equity markets. This increased liquidity could be used to create a “stock stabilization fund,” which may help reduce borrowing costs on about $5.3 trillion in mortgages.
A stock stabilization fund is designed to support stock prices during volatile times. In this situation, the new liquidity could help stabilize China’s struggling equity market.
Coutts noted that with this action, “the bottom is in for global central bank liquidity for this cycle,” implying that central banks around the world may also initiate rate cuts, following the lead of the US and China. Such worldwide cuts could provide a boost to Bitcoin.
Coutts referred to historical data illustrating how Bitcoin has reacted to similar PBOC actions. For example, after the PBOC infused $367.7 billion into the economy via reverse repos in October 2023, and later cut the RRR by 50bps in January 2024, Bitcoin saw significant price movement. Initially priced at around $35,000, Bitcoin surged to nearly $40,000 just before the RRR cut in January and continued to rise to over $71,000 by March 2024, more than doubling its value following the stimulus. Many speculate a similar upward trend for Bitcoin might occur with the latest RRR cut.
Coutts highlighted that Bitcoin’s price is closely linked to global liquidity trends. The new stimulus from the PBOC has the potential to shift investor preferences, making riskier assets like cryptocurrencies more appealing in a landscape characterized by low interest rates and high liquidity.
Future Prospects for BTC
As global central banks decrease interest rates to combat rising unemployment, crypto analysts anticipate that Bitcoin’s recent halving, combined with lowered borrowing costs, could propel positive momentum for the cryptocurrency.
A Standard Chartered Bank executive recently predicted that Bitcoin could reach $200,000 by the end of 2025. However, some analysts are less optimistic, arguing that the significant past impacts of Bitcoin’s halving cycles may be diminishing. As of now, Bitcoin is trading at $63,518, having increased by 0.4% in the last 24 hours.
