San Francisco, California – November 16: Chinese President Xi Jinping appears during talks … [+]
China's economic growth has slowed significantly. The country may not be able to meet its already low annual growth target of 5% this year. Not only does this represent a significant economic change, but it will also have a number of implications for Bitcoin. As Bitcoin prices continue to test upward momentum after months of stagnation, this may represent a hidden bullish factor, which I frequently explore in my writings on Bitcoin and China. This is the theme I am working on.
1- Chinese investors are looking for an exit from stagnant Chinese assets
There is an asset bubble in China, which is causing the price of gold to rise sharply. With stocks and real estate in China falling, there is a premium to get money out of the Chinese system and make money elsewhere. Chinese investors are piling into gold ETFs and government bonds. In 2022, Chinese savers are estimated to have extorted more than $2.6 trillion from China's domestic banking sector. But with interest rates now lower and more stimulus in place, that behavior could change. China's persistently high savings rate, unique among other countries, may need a new home. Given the historical interest in Bitcoin, stablecoins and other cryptocurrencies, Chinese investors looking for an exit may just choose the allure of Bitcoin: getting their money out. Being able to trade with the Chinese system with economic freedom.
Since currency exchange is prohibited on the mainland, over-the-counter trading counters are one way for Chinese people to buy Bitcoin and other cryptocurrencies. Although some crypto buyers in China use exchanges with separate addresses, many large buyers prefer to trade on OTC desks. Recent inflows into these OTC desks are record numbers since 2021, marking a recovery from when China imposed restrictions on Bitcoin mining and trading. This recent surge in price-boosting demand appears to be primarily driven by declining returns on Chinese assets.
2- China's central bank is piling more money into its stimulus package in response.
China's economic downturn has put pressure on both monetary and fiscal authorities to turn the economy around. The most worrying statistic is the high rate of youth unemployment. China's central bank has lowered its interest rate target and eased China's money supply. This should improve the correlation between Bitcoin and risk assets in the short term as central banks race to counter the economic downturn around the world. Already, Chinese investors are rushing away from bonds and back into Chinese stocks, a risky asset that is highly correlated to the price of Bitcoin. As the US Federal Reserve is lowering interest rates and expanding the US money supply, China's central bank will also lower interest rates to keep the renminbi in the same favorable trading range as it is now, raising concerns about the renminbi's depreciation against the renminbi. There will be no need for it. US dollar (in fact, both could fall against Bitcoin.)
3- Chinese companies still dominate the Bitcoin network
In the case of Bitcoin mining, it is estimated that around 20% of the world's hashrate will still be in China as of 2022, despite increasing regulations and provincial bans. Local governments in China are struggling to increase tax revenue due to land shortages. The higher the value, the more attractive the prospect of working with companies that can use stranded power to generate tax revenue and economic growth. This could be responsible for the staggering amount of global hashrate securing the Bitcoin network remaining in China despite the level of regulation and bans.
Bitmain and the Bitcoin mining company originally originated in China. Due to tariffs on the American side and regulations on the Chinese side, the company now manufactures primarily outside of China, although it still maintains many offices there. Many of the mining pools that provide software to coordinate Bitcoin mining originate from China, as do exchanges such as Binance, Huobi, and OKX. As the economic downturn with little state-driven technological inventory eases, the entrepreneurial energy devoted to kickstarting Bitcoin's momentum in China could be redirected to Bitcoin with increased purchasing activity. be. As I wrote extensively in my book on Bitcoin and China, Chinese entrepreneurs, businesses, and buyers will once again have the opportunity to contribute to Bitcoin. In this case, China's loss could be Bitcoin's gain.
