The People's Bank of China just announced a massive stimulus package that is reverberating through global markets.
The People's Bank of China just announced a massive stimulus package that is reverberating through global markets. According to the South China Morning Post, the "policy bazooka" follows a rate cut from the US Federal Reserve.
Measures by the Chinese central bank also include a dramatic cut to the bank reserve requirements, as well as a 50-basis-point cut to the existing mortgage rates. The motive has been to infuse more liquidity into the economy and firm up the sectors that have been performing weakly, especially in housing and consumer spending.
No sooner were the reports out than cryptocurrency enthusiasts started speculating at the possible implications of the monetary easing in China for digital assets. Su Zhu, the founder of the now-defunct Three Arrows Capital, proclaimed that the "China stimulus cycle is kicking in," insinuating that crypto prices could benefit from such a move.
Economist Lyn Alden suggests that Bitcoin's price is historically closely tied to global liquidity, which would indicate the Chinese stimulus could support cryptocurrency valuations into the future.
Beyond the issue of cryptocurrencies, the Chinese government has been working to shore up its economy in other ways, including an 800 billion yuan infusion to prop up Chinese stocks and a plan to create a stock market stabilization fund. These moves have managed to push the value of the CSI 300 index up 7% in the last week.
The timing of this Chinese stimulus package, coming so close to the heels of the Federal Reserve's first rate cut in four years, has set up an extraordinary global economic environment. Classically, these conditions of increased liquidity and lower interest rates usually signal great times for risk assets such as stocks and cryptocurrencies.
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