As a seasoned crypto investor with a knack for spotting trends and patterns, I find the recent move by the People’s Bank of China to cut the reserve requirement ratio intriguing. Having closely monitored the correlation between global liquidity conditions and Bitcoin’s price movement, I am optimistic about the potential impact this could have on BTC.
Reducing the Reserve Requirement Ratio (RRR) by 50 basis points by the People’s Bank of China (PBOC) could potentially boost Bitcoin (BTC), as this move may encourage more liquidity in the Chinese banking system, which might lead to increased investment in cryptocurrencies like Bitcoin.
China Injects Economic Stimulus, Will Bitcoin Benefit?
On September 24, 2024, the Chinese central bank declared that they reduced the Required Reserves Ratio (RRR) by 0.5 percentage points. This action mirrors a similar strategy implemented by the U.S. Federal Reserve on September 18, 2024, when they lowered interest rates by 0.5 percentage points as well.
As per cryptocurrency expert Jamie Coutts, decreasing the Reserve Requirement Ratio (RRR) by 0.5 percentage points would inject around $113 billion into China’s stock market. This newfound liquidity could serve to create a “mortgage stabilization fund,” potentially leading to reduced interest rates on roughly $5.3 trillion worth of mortgages.
To put it simply, a stock stabilization fund functions as a tool within the financial world, primarily aimed at maintaining a company’s share price during periods of market instability. In the context of China, the introduction of additional liquidity serves to bolster and protect their struggling stock exchange.
In simpler terms, Coutts stated, “We’ve reached the end of the expansion phase in global central bank liquidity for this cycle,” implying that many central banks might lower interest rates following the moves by the world’s largest economies. This potential worldwide trend of reduced interest rates could be positive for Bitcoin.
Additionally, Coutts referenced a diagram showing Bitcoin’s typical reaction to actions taken by the People’s Bank of China (PBOC). For example, in October 2023, the PBOC infused $367.7 billion into the economy through reverse repo operations, and in January 2024, the bank reduced the Reserve Requirement Ratio (RRR) by 50 basis points, injecting an additional $140 billion of stimulus.
Throughout October 2023, Bitcoin’s cost remained close to $35,000, but right before the January 2024 RRR reductions, it shot up nearly to $40,000. By March 2024, the value of BTC skyrocketed beyond $71,000, more than doubling since the implementation of the $367.7 billion stimulus package. The recent RRR cut is anticipated to have a similarly favorable impact on Bitcoin’s price.
As a crypto investor, I’ve noticed that Bitcoin’s value often mirrors global liquidity conditions. The recent fresh stimulus from the PBOC could significantly reshape the risk appetite of investors, potentially making cryptocurrencies, such as Bitcoin, more enticing in an economy characterized by low-interest rates and high liquidity – a scenario where risk-on assets tend to shine.
What’s Next For BTC?
With central banks globally lowering interest rates due to increasing joblessness, crypto experts foresee a potential surge in Bitcoin’s value as its recent halving and cheaper borrowing costs might ignite optimistic market trends for this leading digital currency.
An executive from Standard Chartered Bank recently predicted that Bitcoin might reach $200,000 by the end of 2025. However, other analysts are less optimistic, noting that one major driver of Bitcoin’s past price surges—its halving cycles—might no longer be as impactful. At press time, BTC trades at $63,518, up 0.4% in the last 24 hours.
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2024-09-26 02:11