China Opens Stimulus...

China Opens Stimulus Flood Gates Amid Record Demand for Crypto OTC Trades

By José Oramas September 25, 2024 In Banks, China, Cryptocurrency

Double exposure of China flag on coins stacking and stock market graph chart, Cconomy and technology stock change — Source:AdobeStock

The People’s Bank of China introduced policies, including interest rate cuts, more cash for banks, and housing incentives, to combat deflation and stimulate the economy.
Bitcoin and other cryptocurrencies showed little response, with analysts noting that BTC is currently more influenced by US Federal Reserve policies.
In related news, China’s (OTC) crypto market saw inflows of over US$75B in 2024, reflecting a growing demand for alternative investments amidst economic struggles.

China is arguably the most controversial country when it comes to crypto. Following years of harsh government crackdowns on digital asset companies and individuals, the nation is trying to revitalise its economy with sweeping policy measures while witnessing a surge in cryptocurrency trading through unofficial channels.

Pump It!

According to a Bloomberg report, the People’s Bank of China, led by Governor Pan Gongsheng, unveiled a series of significant policies to inject life into the slowing economy.

This is, of course, an attempt to fight deflation, an economic condition that IFF (Institute of International Finance) economists believe is due to “industrial overcapacity and real estate recession”, something that the nation has been battling for years now.

Measures include interest rate cuts, more cash for banks, housing incentives, and plans for a stock stabilisation fund. While not a big financial stimulus, they mostly target financial markets and support the banks.

While these moves sparked positive reactions in the market, with the CSI 300 Index experiencing its largest gain since July 2020, Bitcoin and the crypto market seemingly didn’t care at all. Overall, the market was expecting that a rate cut from the Fed coupled with efforts of economic stimulus from China’s authorities, would boost BTC’s price.

Rick Maeda, a research analyst at Presto Research, told CoinDesk on the matter:

Bitcoin’s lack of response to this news, juxtaposed against rallying Chinese indices, highlights that its current beta appears more tightly linked to Fed policy and U.S. markets, as evidenced by near two-year high correlations with U.S. stocks, particularly following last week’s FOMC [Federal Open Market Committee] meeting.

Rick Maeda, Presto Research

Can’t Stop the Crypto Train

Despite Beijing’s three-year-old ban on digital asset trading, China’s over-the-counter (OTC) cryptocurrency market has seen unprecedented inflows, accumulating over US$75B (AU$108.8B) in the first three quarters of 2024.

As it’s known, the OTC market allows discreet trading of yuan for tokens, bypassing public exchanges and regulatory scrutiny. Moreover, about 55% of these inflows involve transactions exceeding US$1 million, Chainalysis told The Business Times, though it remains unclear if they originate from wealthy retailers, businesses, or both.

These figures highlight a growing demand for alternative investments amid the nation’s struggling economy. Due to overwhelming demand from Chinese investors, Hong Kong’s more favourable regulatory environment has been seen as a getaway for institutional capital.

Interestingly, Hong Kong has benefited from China’s 2021 crypto ban. As Crypto News Australia reported, the special jurisdiction has grown into a crucial crypto hub with an 85.6% year-over-year increase in adoption.

All in all, this trend suggests that many Chinese investors are turning to crypto as a hedge against the weakening economy, even as authorities attempt to enforce the ban and tighten anti-money laundering regulations.