Main Points:
- China’s recent economic stimulus might not create the same credit impulse as in 2015.
- The Chinese housing market crash limits the country’s ability to generate a strong credit impulse.
- Analysts suggest that China’s credit impulse is in a structural decline since its peak in 2008.
- Bitcoin bulls expecting a boost from China’s stimulus could be disappointed.
China’s Economic Stimulus and Bitcoin
China has recently announced its largest economic stimulus package since 2008, igniting optimism in global markets, including stocks and cryptocurrencies like Bitcoin. Some crypto analysts predict Bitcoin (BTC) could reach $100,000 in the coming months, driven by China’s stimulus and potential interest rate cuts from the U.S. Federal Reserve. However, BCA Research warns that the bullish outlook may be overly optimistic, as China’s current credit impulse might not have the same impact as it did in previous economic cycles, particularly in 2015.
Understanding Credit Impulse
The term “credit impulse” refers to the flow of new credit (loans and other debt products) as a percentage of a country’s gross domestic product (GDP). Since the 2008 financial crisis, analysts have closely monitored China’s credit impulse as an early indicator of global economic growth and risk-on sentiment. Historically, the start of a rising credit impulse has coincided with the end of Bitcoin’s bear markets.
During the last major bullish cycle in 2015, China’s credit impulse peaked at 15 trillion yuan (approximately $2.2 trillion USD), representing 15% of the country’s GDP. This surge fueled a doubling of China’s stock market and supported Bitcoin’s recovery from around $100 to the multi-year bull run that culminated in a peak near $20,000 by the end of 2017.
The Current Stimulus Compared to 2015
In contrast to 2015, BCA Research suggests that China’s recent economic stimulus may not be enough to generate a comparable credit impulse. For a similar effect today, the credit impulse would need to peak at around 27 trillion yuan, reflecting the doubling of China’s nominal GDP since 2015. However, the current credit impulse is significantly lower, peaking at less than 5 trillion yuan, far below the levels seen in previous cycles.
The Structural Decline of China’s Credit Impulse
China’s ability to create strong credit impulses has been in decline since its peak in 2008. The housing market, once a key driver of credit growth, is no longer in a boom phase. BCA Research highlights that without the housing market’s exponential growth, it will be difficult for China to reverse the downward trend in its credit impulse.
From 2000 to 2020, China’s housing boom allowed the government to channel vast amounts of credit into real estate development. But now, with the housing market cooling, there is no comparable sector to absorb such large amounts of credit productively. This limits the potential for China to generate a large credit impulse that could stimulate global markets in the same way as before.
Implications for Bitcoin and Global Markets
Bitcoin bulls and investors in global risk assets should be cautious in expecting China’s stimulus to fuel another major rally. The global economic landscape has shifted since 2015, and China’s current economic conditions are less favorable for the type of robust credit expansion seen in previous cycles.
BCA Research emphasizes that while China’s recent stimulus measures have sparked optimism, their real impact may fall short of expectations, especially in the absence of a large-scale credit impulse. With housing no longer the economic engine it once was, China’s ability to drive growth in global markets and cryptocurrencies like Bitcoin may be limited.
A Cautious Outlook for Bitcoin Bulls
While there are still factors that could drive Bitcoin’s price higher, such as potential interest rate cuts from the Federal Reserve, Bitcoin bulls should temper their expectations for a boost from China’s economic stimulus. The structural decline in China’s credit impulse, compounded by the cooling housing market, suggests that the impact of this stimulus may not be as powerful as it was in past cycles. As a result, investors should remain cautious and avoid over-relying on China’s economic policies to fuel Bitcoin’s next bull run.
