China's Influence on Today's Bitcoin Pump

Bitcoin and crypto have surged after China announced it would further support its economy with monetary stimulus—adding to a BlackRock-fuelled crypto boom. The Bitcoin price has topped US$65,000 per Bitcoin, climbing to levels not seen since September.

Now, as JPMorgan analysts issue a surprise Bitcoin price prediction, traders are betting on a continued rotation out of Chinese stocks and into Bitcoin and crypto.

On Saturday, China's finance minister Lan Foan promised to "significantly increase" debt to revive the country's stalled economy but failed to put an exact number on the overall size of the stimulus package.

"We didn’t get much over the weekend, but our expectations were not for much anyway, I still think more fiscal stimulus is coming, this year and in coming years," Mohit Kumar, chief financial economist for Europe at Jefferies, said.

However, some market watchers fear that China officials' lack of detail may mean the market rally is short-lived.

"The devil is always in the detail and once again China has glossed over how it intends to accelerate economic growth," Russ Mould, investment director at AJ Bell.

"Investors were hoping Saturday's event with China's finance ministry would hold all the answers; instead, it was too top-level to sustain the market's optimism. While Chinese shares continued their ascent on Monday, the pace has slowed, and some investors might now be wondering if we’ve seen the best of the rally."

China’s recent stimulus actions are the initial stages of a genuine policy pivot, particularly regarding the way authorities may be thinking about the economy. For example, while the party line that real estate is not for speculation remains, the announced easing in purchase restrictions for second homes demonstrates some willingness to expand pockets of residential real estate investment. However, the intent is unlikely to revive real estate to the point where it drives a domestic wealth effect, rather it is likely aimed at clearing the market from excess inventory to stop property prices from declining further.

Another policy shift of note is that recent measures include substantial fiscal stimulus amounting to about 2% of GDP. Indeed, monetary stimulus aimed at easing credit conditions generates little impact if there’s minimal demand for credit. Therefore, last week’s announced fiscal measures appear targeted towards the demand side of the economy. They consist of early signs of a social safety structure, including unemployment benefits amidst record levels of youth unemployment and some child benefit support and pension reform initiatives.

Before last week's announcements, China had grown by about 3% per year, solidly below the authorities' stated target of 5% annually. Recent measures may place growth closer to that 5% target over the next year.

Those who are long-term readers and watchers of Ainslie Research understand that China has been a significant factor in global liquidity conditions throughout 2024. Now, with China looking to turn the taps on, we expect global liquidity to steepen its ascent.

And those Ainslie Research viewers know all too well; global liquidity leads financial markets, and financial markets lead financial assets.