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 a announcement On September 24, 2024, the Chinese central bank announced that it had cut the risk reserve ratio by 50 basis points. This decision resembles a similar move taken by the US Federal Reserve on September 18, when it initiated interest rate cuts of 50 basis points.
According to According to cryptocurrency analyst Jamie Coutts, a 50bps cut in the RRR would add $113 billion in liquidity to the Chinese stock market. This new liquidity could effectively establish a “stock stabilization fund,” potentially reducing borrowing costs on an estimated $5.3 trillion in mortgages.
For the uninitiated, a stock stabilization fund is a financial mechanism typically used to support a company’s stock price during times of volatility. In the Chinese context, the liquidity injected will provide some support to protect its struggling stock market.
Coutts added that “global central bank liquidity has bottomed out this cycle,” suggesting that central banks around the world could follow suit by cutting rates following the actions of the world’s two largest economies. This global trend of lower rates could be bullish for Bitcoin.
Coutts also pointed to a chart highlighting how BTC has historically responded to PBOC stimulus measures. For example, in October 2023, the PBOC injected $367.7 billion into the economy through reverse repos, and in January 2024, the bank reduced the RRR by 50bps, adding $140 billion in stimulus.
During this period, the Bitcoin price hovered around $35,000 in October 2023, but surged to nearly $40,000 just before the January 2024 RRR cuts. By March 2024, BTC had surged to over $71,000, more than double its value since the $367.7 billion stimulus package. The latest RRR cut should have a similar positive effect on the Bitcoin price.
Coutts stressed that Bitcoin’s price remains closely tied to global liquidity conditions. The PBOC’s new stimulus measures could significantly change investors’ risk appetite, making risk assets like cryptocurrencies more attractive in an environment of low interest rates and high liquidity.
What’s next for BTC?
As central banks around the world cut interest rates to address rising unemployment, cryptocurrency analysts predict that the combination of Bitcoin’s recent halving and lower borrowing costs could fuel bullish momentum for the leading digital asset.
A Standard Chartered Bank executive recently predicted that Bitcoin could hit $200,000 by the end of 2025. However, other analysts are less optimistic, noting that one of the main drivers of Bitcoin’s past price rallies—its halving cycles—may no longer have as much impact. At press time, BTC is trading at $63,518, up 0.4% in the past 24 hours.
Featured image from Unsplash.com, charts from x.com and TradingView.com
