Will Credit Incentives in China Make Bitcoin Soar? Analysts Revealed the Truth

The biggest stimulus measures taken by China since 2008 initially caused losses in Chinese stocks and Bitcoin (BTC) It led to a rally in global risk assets, including

According to Analysts, Chinese Incentives May Not Have the Expected Effect on Bitcoin This Time

Krypto para Analysts had high hopes that the combination of China’s economic stimulus and possible interest rate cuts from the FED would push Bitcoin to $100,000 in the coming months.

However, new information from BCA Research suggests that optimism may be misplaced. According to their analysis, China’s latest round of stimulus lacks the power to generate the same bullish “credit impulses” that have fueled previous market rallies, including Bitcoin’s rise.

Credit expansion refers to the flow of new credit through loans and debt instruments, expressed as a percentage of the country’s gross domestic product (GDP). Analysts have been tracking China’s credit volume for more than a decade as a key indicator of economic growth and rising risks around the world. Historically, increases in this metric have coincided with Bitcoin bear market bottoms and subsequent bull runs.

In 2015, China’s credit drive reached 15% of GDP, accounting for 15.5 trillion yuan. During this period, Chinese stocks represented by the CSI 300 index doubled in value in six months. Simultaneously, Bitcoin bottomed around $100, sparking a two-year bull run that culminated in a peak of $20,000 in December 2017.

China’s economy has doubled in terms of nominal GDP since then, meaning that current credit growth needs to reach 27 trillion yuan to catch up with the upward impact of 2015. However, the most recent peak in credit growth was just under 5 trillion yuan, well below the level needed to repeat previous market booms.

This shortfall would require the latest stimulus measures to create a breadth five times larger than the current peak, BCA Research noted in an Oct. 2 note to clients. Without such an increase, the expected increase in the economy and therefore in risk assets such as Bitcoin may not occur.

One of the biggest obstacles to China increasing its credit volume is the lack of a strong housing market. China’s credit expansion from the early 2000s to 2020 was largely fueled by a booming real estate market that absorbed large amounts of new credit. But with the housing market cooling, there are fewer productive channels for this credit to flow, making it harder for China to see the same level of economic growth.

“Between 2000 and 2020, when China’s housing boom was in full swing, it was possible to redirect the exponential credit curve into a housing and construction boom,” BCA analysts said. “But now, with no alternative target for the productive use of the same sized loan, the same monster loan It will be difficult to produce his moves.”

While the promise of a Bitcoin rally fueled by Chinese incentives is tempting, the reality may be more complex. The lack of significant credit taps and the challenges facing the Chinese economy could limit the impact of the latest stimulus on global risk assets, including Bitcoin. For now, Bitcoin bulls may need to temper their expectations.

*This is not investment advice.