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 Is Stimulating Its Economy. Will Bitcoin Benefit From It?

IN announcement On September 24, 2024, the Chinese central bank announced that it had cut the RRR by 50 basis points. The move is reminiscent of a similar step taken by the US Federal Reserve on September 18, when it initiated a 50 basis point rate cut.

According to According to cryptocurrency analyst Jamie Coutts, a 50 basis point RRR cut would add $113 billion of liquidity to China’s stock market. This fresh liquidity could effectively establish an “equity stabilization fund,” potentially lowering borrowing costs on some $5.3 trillion of mortgages.

For the uninitiated, a stock stabilization fund is a financial mechanism that is typically used to maintain a company’s stock price during periods of volatility. In the context of China, the injected liquidity will provide some support to shore up its beleaguered stock market.

Coutts further commented, “global central bank liquidity has bottomed out in this cycle,” suggesting that central banks around the world could follow suit by cutting interest rates following the actions of the world’s two largest economies. This global trend of lower interest rates could be bullish for Bitcoin.

Coutts also pointed to a chart showing how BTC has historically responded to PBOC stimulus. For example, in October 2023, the PBOC injected $367.7 billion into the economy via a reverse repo, and in January 2024, the bank cut RRR by 50 bps, adding $140 billion in stimulus.

During this period, Bitcoin price hovered around $35,000 in October 2023, but rose to almost $40,000 just before the RRR cuts in January 2024. By March 2024, BTC had risen 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 price.

Coutts emphasized that Bitcoin’s price remains closely tied to global liquidity conditions. Fresh PBOC stimulus could significantly change investors’ risk appetite, making risk assets like cryptocurrencies more attractive in a low-interest-rate, high-liquidity environment.

What’s next for BTC?

As central banks around the world cut interest rates to cope with rising unemployment, cryptocurrency analysts predict that the combination of the recent bitcoin halving and lower borrowing costs could fuel a 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 hopeful, noting that one of the main factors driving Bitcoin’s past price gains — its halving cycles — may no longer have as much of an impact. At the time of going to press, 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