Main Points:
- Recent Chinese economic stimulus efforts appear less effective compared to the 2015 cycle.
- The collapse of the housing market limits China’s ability to generate a strong “credit impulse.”
- Credit impulse has been in a structural decline since peaking in 2008.
- Despite China’s efforts, the stimulus may not sustain the rise in global risk assets, including Bitcoin.
In recent months, China has rolled out some of its largest economic stimulus measures since 2008, igniting a rally in global risk assets, including stocks and Bitcoin. While many cryptocurrency analysts remain optimistic, predicting Bitcoin could reach $100,000 in the coming months, some experts are urging caution. BCA Research highlights that China’s recent stimulus is unlikely to create the kind of bullish “credit impulse” seen in past cycles, especially in 2015. This raises questions about whether the current rise in risk assets, including Bitcoin, can be sustained.
The Role of China’s Credit Impulse
The term “credit impulse” refers to the flow of new credit, including loans and other debt instruments, as a percentage of Gross Domestic Product (GDP). Analysts closely monitor China’s credit impulse as a leading indicator of global economic growth and rising risk assets since the 2008 financial crisis. Historically, when the credit impulse starts to rise, it signals the end of a bear market for assets like Bitcoin.
In 2015, China’s credit impulse peaked at 15 trillion yuan, or roughly 15% of its GDP. This strong surge in credit led to a dramatic rally in the Chinese stock market, with the CSI300 Index doubling in just six months. During the same period, Bitcoin bottomed out near $100 before embarking on a two-year bull market, culminating in a near $20,000 peak in December 2017.
China’s Current Stimulus: A Weak Credit Impulse
China’s economy has doubled in size in nominal GDP since 2015, but BCA Research argues that to generate a similar bullish effect on markets today, China’s credit impulse would need to reach a staggering 27 trillion yuan. Unfortunately, the recent credit impulse peak has been less than 5 trillion yuan, signaling that this stimulus cycle lacks the strength to drive markets like it did in the past.
BCA’s October 2 report states that for the recent stimulus to match 2015’s impact, it would need to be five times larger than its current size. This gap suggests that China’s latest efforts will fall short of the massive economic boosts seen in prior years.
The Housing Market Collapse Limits Credit Growth
One of the main drivers of China’s previous credit booms was its housing market. For decades, the housing market fueled a rapid expansion of credit as new loans poured into real estate development. However, China’s property sector is currently in a severe downturn, with major developers like Evergrande facing defaults. Without the housing market acting as a conduit for credit growth, China may find it difficult to create the same kind of credit impulse that previously powered its economy.
BCA analysts explained that during the housing boom from 2000 to 2020, China was able to direct exponential credit growth into real estate. Today, there are no obvious alternative sectors where China can inject large amounts of productive credit. As a result, generating a similarly large credit impulse will be “easier said than done.”
Global Implications for Bitcoin and Risk Assets
The link between China’s credit impulse and the performance of global risk assets, including Bitcoin, has been well-documented. When China’s credit impulse rises, global markets often follow. However, with China’s stimulus appearing weaker this time around, Bitcoin bulls may need to temper their expectations for an extended rally.
Cryptocurrency markets are highly sensitive to macroeconomic conditions, and the fading power of China’s credit impulse could mean that Bitcoin’s recent gains may not last. Additionally, the global economic landscape remains uncertain, with the U.S. Federal Reserve still maintaining a relatively tight monetary policy stance. These factors could weigh on Bitcoin’s ability to break through the much-anticipated $100,000 mark.
While Bitcoin has benefited from China’s recent stimulus efforts, investors should be cautious. The structural decline in China’s credit impulse, coupled with the collapse of its housing market, suggests that this stimulus cycle may not provide the same market-boosting effects seen in the past. Without a strong credit impulse, Bitcoin’s bullish momentum could be short-lived. As such, Bitcoin bulls should closely monitor developments in China’s economic policy and be prepared for potential volatility in the months ahead.
