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Cryptocurrency News Articles
Bitcoin (BTC) Prices Show Positive 30-Day Correlation With China's Central Bank Balance Sheet
Sep 27, 2024 at 09:01 pm
“The new inflow of cash could indirectly push up the price of bitcoin, particularly in the long term perspective,” one analyst said.
Bitcoin (BTC) prices appear to be following the growth in the Chinese central bank's balance sheet over the last eight years, maintaining a strong positive 30-day correlation.
The People's Bank of China (PBOC) holds roughly $6.22 trillion in U.S. dollars on its balance sheet. At press time, the 30-day correlation coefficient between bitcoin's price and the PBOC's balance sheet size was 0.66, according to data source TradingView. The correlation has remained positive throughout the period, except for 2016 and from late 2022 to 2023.
On the other hand, bitcoin had a -0.88 correlation over 30 days with the Federal Reserve's balance sheet, the lowest on record since 2016.
A strong correlation ranges from 0.6-0.9, while 0.8-1 is considered a very strong correlation. Correlations are a statistical measure of how two variables are related and can be used in financial markets to predict or track asset prices.
The positive correlation is significant, especially as the PBOC announced earlier this week that it was considering injecting up to 1 trillion yuan ($142 billion) of capital into its biggest state banks to enhance their ability to support the struggling economy.
The central bank also reduced the reserve requirement ratio for mainland banks by 50 basis points (bps) and the seven-day reverse repo rate – the interest rate at which a central bank borrows funds from commercial banks – by 20 bps to 1.5%.
BTC has risen nearly 3% this week and over 10% for the month, according to CoinDesk data. Following the PBOC's stimulus measures, Asian stocks, particularly those in China, have also surged.
The CSI 300 Index of large-cap shares soared 4.5% on Friday, bringing the gain for the week to 16%, the highest since 2008.
In a Telegram message to CoinDesk on Friday, market analyst Nick Ruck highlighted that the stimulus, like that provided by the U.S., aims to reduce unemployment and encourage business growth, which could have an indirect effect on bitcoin's price, especially over the long term.
“The stimulus could lead to increased investment in blockchain companies that may include mining technology and startups,” Ruck explained. “Select funds may also be able to increase exposure to crypto-related investments offshore, such as in stock-listed firms and ETFs in Hong Kong.”
Others anticipate that the boost will extend beyond bitcoin, benefiting all riskier assets in the upcoming months.
“It’s all the green light for global risk markets as U.S. equities hit new ATHs for the 3rd time this week, helped by a rapid-fire of furious stimulus to resuscitate the long-struggling Chinese economy,” Augustine Fan, head of insights at SOFA, told CoinDesk. “This has led macro observers to turn explicitly bullish on all risk assets in the interim, with a seemingly globally synchronized easing move that was reminiscent of the easy-money days from the QE era.”
“Naturally, crypto prices are still highly correlated to equity performance. However, investor sentiment seems to have flipped to a ‘buy the dip’ mode, and risk-reward favors a continued rally with no or little downside catalysts in sight,” Fan added.
The Block Commodities Editor Shaurya Malwa covered the story.
CoinDesk is an independent operating subsidiary of Digital Currency Group, which also owns Grayscale, Genesis Trading, CoinDesk Indexes and Foundry.
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