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Bitcoin (BTC) could benefit from the People’s Bank of China’s (PBOC) decision to cut the reserve requirement ratio (RRR) by 50 basis points (bps).
China Injects Economic Stimulus, Will Bitcoin Benefit?
In an announcement on September 24, 2024, the Chinese central bank stated it had slashed the RRR by 50bps. The move bears semblance to a similar step taken by the US Federal Reserve on September 18, when it initiated interest rate cuts with 50bps.
According to cryptocurrency analyst Jamie Coutts, reducing RRR by 50bps will add $113 billion of liquidity to the Chinese equity market. This fresh liquidity could effectively establish a “stock stabilization fund,” potentially lowering borrowing costs on approximately $5.3 trillion in mortgages.
For the uninitiated, a stock stabilization fund is a financial mechanism typically used to sustain a company’s stock price during times of volatility. In China’s context, the injected liquidity will provide some support to safeguard its beleaguered equity market.
Coutts further commented, “the bottom is in for global central bank liquidity for this cycle,” suggesting that central banks worldwide may follow suit with rate cuts after the actions of the world’s two largest economies. This global trend of rate cuts could be bullish for Bitcoin.
Coutts also pointed to a chart highlighting how BTC has historically responded to PBOC stimulus. For instance, in October 2023, the PBOC injected $367.7 billion into the economy through reverse repos, and in January 2024, the bank cut the RRR by 50bps, adding $140 billion in stimulus.
During this period, Bitcoin’s price hovered around $35,000 in October 2023 but climbed to nearly $40,000 just before the January 2024 RRR cuts. By March 2024, BTC had surged to over $71,000, more than doubling in value since the $367.7 billion stimulus. The latest RRR cut is expected to have a similarly positive effect on Bitcoin’s price.
Coutts emphasized that Bitcoin’s price remains closely tied to global liquidity conditions. The PBOC’s fresh stimulus could significantly alter investor risk appetite, making risk-on assets like cryptocurrencies more attractive in a low-interest-rate, high-liquidity environment.
What’s Next For BTC?
As central banks worldwide reduce interest rates to address rising unemployment, crypto analysts predict that the combination of Bitcoin’s recent halving with lower borrowing costs could fuel bullish momentum for the leading digital asset.
An executive from Standard Chartered Bank recently predicted that Bitcoin might reach $200,000 by the end of 2025. However, other analysts are less optimistic, noting that one major driver of Bitcoin’s past price surges—its halving cycles—might no longer be as impactful. At press time, BTC trades at $63,518, up 0.4% in the last 24 hours.
Featured Image from Unsplash.com, Charts from x.com and TradingView.com
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