China ramps up fiscal and monetary stimulus, targeting consumption and mitigating trade war effects

Such central bank stimulus measures often lead to increased global liquidity, which can spill over into various risk assets, including bitcoin.

China unveiled plans on Wednesday to ramp up fiscal and monetary stimulus in a bid to boost consumption and mitigate the effects of an escalating trade war with the United States. Such central bank stimulus measures often lead to increased global liquidity, which can spill over into various risk assets, including bitcoin.

Historically, expansive stimulus policies in major economies have coincided with bullish trends in the cryptocurrency markets. A study by S&P Global found that both bullish and bearish trends in the crypto market have occurred during periods of ultra-loose monetary policy and significant tightening.

In September 2024, bitcoin surged 12.3%, not bad for one month, and clocked one of its best September performances. This rally aligned with China’s previous stimulus efforts, which included cutting short-term interest rates and reducing banks' reserve requirements to support its housing and equity markets. Additionally, TradingView data indicates a positive correlation between bitcoin’s price and the People's Bank of China’s (PBOC) balance sheet over the past eight years.

A Nexo spokesperson highlighted the potential implications of China's latest stimulus for alternative assets.

"In previous instances when China has ramped up monetary stimulus and injected excess liquidity into the system, in 2015 and in 2020, excess liquidity found its way into alternative assets," the spokesperson told The Block. "Such stimulus could have broader implications for global markets, increasing appetite across equities and alternative assets."

However, the Nexo spokesperson also cautioned that China’s strict regulatory controls limit direct participation in crypto markets.

"State-backed alternatives may absorb some of the liquidity, or capital could flow into traditional safe-haven assets like gold," they added.

On Wednesday, China’s annual government work report announced a 5% GDP growth target, a fiscal deficit target of 4% of GDP, and a focus on boosting private consumption through various measures.

"China remains in a slow positive economic momentum, not a boom," Nansen Principal Research Analyst Aurelie Barthere told The Block.

So far, she added, Chinese developments do not weigh as much as U.S. policy changes for crypto markets, despite positive signaling around AI investment by the central government.

China braces for Trump tariff impact

According to Reuters, Chinese Premier Li Qiang, speaking at the opening of the annual meeting of China's parliament, warned that "changes unseen in a century are unfolding across the world at a faster pace." The ongoing trade war, which began with U.S. President Donald Trump's imposition of tariffs on Chinese goods in 2018, continues to threaten China’s industrial sector. This challenge is further complicated by weak domestic consumption and a deteriorating, debt-laden property market, rendering China’s economy increasingly vulnerable.

On the global growth front, analysts remain cautious in terms of risk asset appreciation.

"From a pure macro perspective, bitcoin's performance appears to be most dominated by global growth expectations," Bitwise European Head of Research Europe André Dragosch noted.

And those expectations have recently been repressed due to the threat of further U.S. tariffs, he added.

"If we do see a broad-based deterioration in global growth expectations, I think that would factor negatively into bitcoin's performance," Dragosch said.

"With U.S. inflation data and the Federal Reserve's interest rate decision looming, it is time to brace for further turbulence in the markets this week," cryptocurrency and financial markets analyst Richard Ptardio told The Block.

"A prolonged consolidation for bitcoin might be the best we can hope for over the coming months as the cryptocurrency attempts to build a base for the next leg of its bull market."