The economic behemoth of Asia, China, is, quite literally, making more money. While at first glance this appears to be an effort to bolster its stuttering economy and prevent further market crashes, a deeper analysis reveals much more.
China’s current economic conundrum comes from a weak economic performance and a dwindling flow of credit in the region. Alarmingly, output in July has decelerated from the previous month’s growth, while the number of new loans plummeted significantly compared to June. This negative impact on global economic growth is being watched warily, particularly by investors who think China’s real estate woes might influence the U.S dollar and commodities negatively, and eventually, Bitcoin’s price.
On August 28, the Shanghai Shenzhen CSI 300 Index, often regarded as a vital indicator of the Chinese stock market’s health, surged initially before eventually settling with modest progress of just 1.2%. Despite the minor improvement, the performance of Chinese stocks remains lackluster in comparison to other equities around the world.
Bitcoin traders justifiably express apprehension about potential reverberations from the Chinese stock market’s volatility. Historical price trends and the apparent shift in sentiment towards avoiding risk-ridden markets during periods of macroeconomic instability validate such concerns. A notable correlation between the movements of the Chinese stock index and the Bitcoin/USD index becomes apparent in such market conditions.
However, the Peoples Republic of China (PROC) has taken steps towards restoring investor confidence. A notable instance is the recent surge, apparently kindled by the PROC’s measures stated on August 72. These measures proposed special refinancing terms for the real estate sector to manage challenges and sustain economic stability, reduced fees to encourage companies to buy back shares, ascertain trading firms lower leverage margins, and more.
Regrettably, these measures quickly appeared insufficient as a long-term fix, with critics saying they fail to halt the downward trend and their impact will likely be short-lived. Evidence of this failing strategy comes from the foreign capital that seems to be deserting Chinese stocks, contributing to a potential record for outflows in August.
This set of complications addresses the gist of why China isn’t rolling out highly effective stimulus packages. A plausible answer lies in the value of the country’s currency, the Yuan, which has been spiraling down against the US dollar. This occurrence is worryingly indicating historically low levels of the currency.
Interestingly, it seems that the primary beneficiary of the outflow from the Chinese stock market is the U.S. stock market, leading to a stronger American dollar. This turn of events could be tough terrain for Bitcoin. Although currently unable to reclaim the $29,000 support, Bitcoin’s value as an independent and alternative hedge holds steadfast, irrespective of the relative strength of the U.S. dollar against its counterparts. Moving forward, the acceleration or deceleration of these macro trends would shape the Bitcoin market’s trajectory.
Source: Cointelegraph
