Main Points:
- China’s recent economic stimulus may not match previous bullish credit cycles, notably the one in 2015.
- The collapse of China’s housing market is limiting the country’s ability to generate a strong “credit impulse.”
- Credit impulse, which has been on a structural decline since peaking in 2008, may no longer have the same bullish impact on risk assets like Bitcoin.
China’s recent economic stimulus measures, the largest since 2008, have sparked a surge in global risk assets, including Chinese stocks and Bitcoin. Many crypto analysts predict that, combined with potential interest rate cuts from the U.S. Federal Reserve, Bitcoin could reach as high as $100,000 in the coming months. However, analysts from BCA Research are cautioning that this bullish outlook may be premature. According to their findings, the scale of China’s current credit impulse—an indicator often linked to the rise in Bitcoin and other risk assets—might not be as strong or sustainable as it was in previous cycles, particularly during the 2015 market boom.
China’s Credit Impulse: A Key Driver for Risk Assets
The term “credit impulse” refers to the flow of new credit through loans and other debt instruments relative to GDP. Since the 2008 financial crisis, global analysts have closely monitored China’s credit impulse as an early indicator of economic growth and bullish sentiment in risk assets, including Bitcoin. Historically, a rising credit impulse has signaled the end of bear markets in Bitcoin.
During the last major credit cycle in 2015, China’s credit impulse peaked at 15% of GDP, equivalent to 15.5 trillion yuan (about $2.1 trillion). At the time, Chinese stocks doubled in value in just six months, and Bitcoin, which was near $100 at its bottom, surged into a bull market that saw it peak near $20,000 in December 2017.
Diminished Credit Impulse in 2024
However, the landscape has changed significantly since the 2015 cycle. China’s economy has since doubled in size in nominal GDP terms, meaning that to generate the same bullish impact on markets today, the credit impulse would need to reach 27 trillion yuan (approximately $3.7 trillion). The most recent peak, however, was less than 5 trillion yuan.
BCA Research highlights that this discrepancy could signal that China’s economic stimulus measures may not have the same bullish effect on global markets as they once did. In their October 2nd client note, BCA analysts emphasized that to match the bullishness seen in 2015, China would need to inject credit on a scale five times greater than its recent peak.
Housing Market Collapse: A Major Obstacle
One of the major factors holding back China’s ability to generate a strong credit impulse is the collapse of its housing market. During previous cycles, particularly in the 2000s and 2010s, China’s housing boom played a crucial role in driving credit growth. However, with the housing market now in decline, the same conditions that fueled previous surges are no longer in place.
BCA analysts noted that during the height of China’s housing boom from 2000 to 2020, the country could direct its credit expansion toward massive housing construction projects. This created an exponential credit curve that fueled both the economy and global markets. But today, China lacks similarly large-scale, productive avenues for credit deployment, making it unlikely that a similar surge in credit impulse will occur in the near future.
Structural Decline in Credit Impulse
The structural decline in China’s credit impulse has been a persistent trend since it peaked at 25% during the 2008 financial crisis. This decline has made it increasingly difficult for China to generate the kind of bullish credit cycles that fueled previous risk-on rallies in global markets, including Bitcoin.
While some analysts remain optimistic about the impact of China’s stimulus measures, BCA Research urges caution, arguing that the underlying structural issues in the Chinese economy—particularly the housing market collapse—could limit the effectiveness of these measures. Without a significant reversal in the credit impulse trend, the current surge in risk assets may be short-lived.
Implications for Bitcoin Investors
For Bitcoin investors, this analysis from BCA Research serves as a warning. While China’s stimulus measures have contributed to recent bullish sentiment in the crypto market, the structural limitations of the Chinese economy may prevent a sustained rise in the credit impulse. This, in turn, could dampen the prospects for a prolonged Bitcoin rally.
Bitcoin bulls who are banking on a repeat of the 2015 cycle should be aware that the economic conditions that fueled that rally—particularly the massive credit injection from China—may no longer be in place. Without a strong and sustained credit impulse from China, Bitcoin’s current bull run may face significant headwinds.
China’s economic stimulus measures have historically had a significant impact on global risk assets, including Bitcoin. However, the current economic landscape is far different from previous cycles, particularly 2015. The collapse of China’s housing market and the structural decline in its credit impulse suggest that the country’s ability to generate the same bullish impact on global markets may be limited. For Bitcoin investors, this means that while the current rally is promising, it may not be as long-lasting or robust as some expect. Keeping a close eye on China’s credit impulse and the broader economic picture will be crucial for navigating the market in the coming months.
