Bitcoin’s Rally After China’s Stimulus Package
Bitcoin experienced a significant rally following announcements of the stimulus package by the People’s Bank of China (PBOC). Many analysts believe this is just the beginning, with predictions of a possible breakout toward $78,000 in the coming weeks. This article explores how China’s latest economic stimulus and central bank actions impact Bitcoin and why this could lead to even more growth in the cryptocurrency market.
China’s Stimulus Package and Bitcoin
On September 24, the People’s Bank of China announced a plan to inject around $140 billion into its financial system by cutting the reserve requirement ratio (RRR) by 50 basis points. This is part of China’s efforts to boost its struggling economy and real estate market. These measures also include lowering borrowing costs and easing property purchase rules to support the real estate sector.
As central banks worldwide pay close attention to China’s actions, Jamie Coutts, chief crypto analyst at investment management firm Real Vision, claims that China’s latest stimulus package is a big deal for Bitcoin. He predicts it could even influence other central banks to follow the same path, which could be a game-changer for Bitcoin prices.
Coutts stated, “The bottom is in for global central bank liquidity for this cycle. Sit back and watch the other central banks fall into line.” In simpler terms, he means that central banks around the world might start injecting more money into their economies, just like the PBOC.
Bitcoin’s Past Response to China’s Economic Stimulus
It’s not the first time Bitcoin has reacted positively to China’s economic stimulus measures. For example, the PBOC injected $367.7 billion through reverse repos in October 2023 and another $140 billion in January 2024 by reducing the RRR by 50 basis points. After these actions, Bitcoin’s price soared by more than 100%, showing a clear relationship between Chinese stimulus and Bitcoin’s growth.
Even though China banned crypto mining back in 2021, the connection between Bitcoin and Chinese liquidity remains strong. This shows how the cryptocurrency’s performance is still tied to global liquidity conditions, and China’s recent measures could push investors to take on more risk by investing in assets like Bitcoin.
Why Central Bank Liquidity Matters for Bitcoin
Bitcoin operates in a credit-based fiat fractional reserve system, where debasement, or the reduction of currency value, is seen as a natural part of the process. When central banks, like the PBOC, inject more money into the economy, it often means that the value of fiat money drops. As a result, investors look for alternatives, such as Bitcoin, to protect their wealth.
This trend is why analysts believe central bank liquidity boosts Bitcoin demand. When more money is available in the financial system, people tend to invest in risk assets like Bitcoin, expecting higher returns. Therefore, China’s latest stimulus package could spark more investment in Bitcoin, as other central banks may start following China’s example.
Technical Analysis: Bitcoin’s Bull Flag Pattern
Adding to the excitement is the technical analysis of Bitcoin’s price movements. Currently, Bitcoin’s price chart shows a “bull flag” pattern. This pattern happens when an asset’s price moves upward sharply, then consolidates in a descending channel. In simpler terms, Bitcoin has been moving sideways after a big rally, and now it looks ready for another breakout.
If Bitcoin manages to break above this pattern’s upper trendline, analysts predict it could hit $78,000, a potential new record high. However, if it fails to break out, Bitcoin’s price might fall back down to its lower trendline, around the 0.0 Fibonacci retracement level. This retracement pattern is often used to predict potential price levels based on past movements, giving traders more insight into possible outcomes.
How Inflation and Central Bank Policies Affect Bitcoin’s Growth
For Bitcoin to reach its new all-time high, it may need to rise above $80,000 when adjusted for inflation. Inflation is another key factor driving Bitcoin’s growth, as traditional fiat currencies lose value over time. The more central banks inject liquidity into the system, the higher inflation rises, making Bitcoin a more attractive investment for those looking to safeguard their wealth.
As inflation pressures increase globally, investors are shifting their focus to assets like Bitcoin, which has a fixed supply of 21 million coins. This scarcity makes it less likely to lose value over time, unlike fiat currencies that can be printed endlessly.
Bitcoin Whales Are Waking Up
Recently, several long-dormant Bitcoin whales, who mined Bitcoin in its early years, have become active again. One such whale, who mined during the Bitcoin network’s earliest months, moved 10 BTC (worth $630,000) to the cryptocurrency exchange Kraken. This miner holds about $77 million worth of BTC mined during Bitcoin’s first months, which means their actions could significantly impact the market.
According to analysts at Arkham Intelligence, this isn’t the first time a Satoshi-era Bitcoin miner has “woken up” recently. Another miner, who held at least $16 million worth of Bitcoin since 2009, also transferred their coins to a different address. These activities raise questions about whether these early miners plan to sell their Bitcoin holdings, which could impact the market.
Why Are Bitcoin Whales Selling Now?
Bitcoin whales, especially those who have held their assets for many years, often sell their coins when they believe the price has reached a profitable level. As Bitcoin’s value increases, long-term holders might feel more incentivized to cash in on their investments. This behavior is common and usually happens when Bitcoin shows signs of an upcoming rally or after a significant price surge.
Analysts have noted that Bitcoin transfers to centralized exchanges like Kraken often indicate an intention to sell. While it’s unclear why these whales are moving their funds, their actions add an element of uncertainty to the market, especially when Bitcoin’s price is showing signs of a potential breakout.
China’s Impact on Bitcoin Mining and Liquidity
Although China banned crypto mining in 2021, the country’s influence on Bitcoin is still significant. Its economic policies, like stimulus packages and liquidity injections, continue to affect Bitcoin prices. For example, China’s recent stimulus has pushed up Bitcoin’s value, proving that global liquidity trends play a big role in cryptocurrency markets.
The PBOC’s moves, including lowering the reserve requirement ratio and providing more liquidity, create a ripple effect across financial markets, including cryptocurrencies. As China pumps more money into its economy, investors are likely to seek assets that offer higher returns, like Bitcoin.
What’s Next for Bitcoin?
With China’s stimulus measures and the potential influence on other central banks, Bitcoin could be headed toward a significant breakout. Analysts believe that the bull flag pattern is a strong indicator of this upward trend, with predictions pointing to $78,000 or more. However, the recent activity of early Bitcoin whales adds an element of uncertainty that could either propel Bitcoin’s price higher or lead to short-term selling pressure.
As central bank liquidity increases globally, and inflation continues to rise, Bitcoin stands out as a valuable asset for investors looking to protect their wealth. While the relationship between Bitcoin and China may not be as direct as before, the PBOC’s actions still have a strong influence on the cryptocurrency market.
Bitcoin’s rally after China’s latest stimulus package suggests that we could be in for an exciting period ahead. Whether this will lead to a new all-time high or just another chapter in Bitcoin’s journey remains to be seen. One thing is clear: Bitcoin’s connection to global liquidity conditions makes it a critical asset to watch as central banks continue to shape the economic landscape.
