Crypto’s Fate Could Rest on China’s Shoulders
Recently, crypto markets experienced a rather impressive belly flop, with Bitcoin (BTC, “B+”) nosediving below $28,000 and Ethereum (ETH, “B”) barely hanging on under $1,800.
A market spectacle of 2023, if you will. But the big question is: Why?
Well, the gossip mill started churning on speculations of delays for the Grayscale spot Bitcoin ETF approval. Meanwhile, talk of SpaceX’s unverified selling of its Bitcoin stack got others hot under the collar.
Oh, the drama. But I’d wager that the real puppet master wasn’t Elon Musk … it was China.
You see, China’s economic dance with deflation isn't anything new. Its central bank was on a money printing joyride in 2022 … until the yuan started looking less like a currency and more like a roller coaster.
Now, many attribute the global economic rebound after the 2008 Global Financial Crisis to Western governments. Fair point, but let’s not forget China — the silent, colossal benefactor.
After 2008, China didn’t just print money … it set up a whole cash factory. Its ensuing construction spree, fueled by this newfound “wealth,” was legendary.
Indeed, the construction of entire cities in mere years might sound like an ambitious kid playing SimCity, but it was China’s reality back then.
Although these feats triggered a global commodity boom, the foundation was shaky. In fact, analysts put the Chinese housing bubble's size at a whopping $50 trillion.
That’s twice the size of the U.S. housing bubble in 2008!
Enter the scene-stealer: Country Garden, China's star real estate developer, is now teetering on bankruptcy's edge.
But housing isn't the only skeleton in China's closet. Its lust for currency strength is causing palpitations among the top brass.
Currently, the president of the People’s Republic of China, Xi Jinping, is aiming to pitch the yuan as the world’s next “It Currency.” And he’s on a mission to fulfill his vision.
His tactic? Sidelining economic stability champions in favor of his currency-loyalist entourage.
And last week's yuan antics — slipping down the ladder against the dollar — indicate a central bank trying to put on a brave face while internally screaming.
It's comical how the People's Bank of China even attempted to cut interest rates amid this chaos, and then played around with short-selling bans and financial transaction taxes. Spoiler: None of it stuck.
Plainly put, things could go south, and fast. However, there’s a path to salvation: The People's Bank of China could absorb the housing debt nightmare, saving both its financial scene and perhaps even the world’s.
But the big guy, Xi, is a bit preoccupied dreaming of yuan supremacy and a China-driven global financial system.
So, keep an eye out. If China's economic threads continue to unravel, then Xi might have to toss aside his currency pride and pull out the big guns.
For crypto enthusiasts, the unfolding drama in the Middle Kingdom is your must-watch thriller. China's next moves could be the key that make or break crypto's fate.
Alex Benfield’s Notable News, Notes and Tweets
- Here’s your daily reminder that U.S. regulators have completely missed the ball on cryptocurrency so far, but it’s not too late to fix things.
- This misaligned approach from U.S. regulators has now pushed crypto exchange Bitstamp to shut down staking services in the U.S.
- There's a Bitcoin wallet that has accumulated over $3 billion BTC in just the past 90 days. There are rumors the wallet could be Robinhood or perhaps BlackRock (BLK), although nothing has been officially confirmed yet.
- As we approach the next Bitcoin halving due sometime next April, even TradFi institution Fidelity is talking up the importance of this event.
What’s Next
Overall, the troubles in China could certainly end up having a material effect on the crypto market, especially if it ends in more money printing.
Additionally, investors around the world will be monitoring the effects on the Chinese economy, specifically the real estate sector.
After all, weakness in the Chinese economy could worry investors and incite additional caution toward investments. As a result, this could incentivize more money to shuffle toward harder assets like Bitcoin and gold.
We’ll have to keep a close eye on the situation to see exactly how it might shake out.
That said, there are still plenty of reasons to remain bullish on crypto in the medium- to long-term outlooks.
For instance, the upcoming Bitcoin halving and the numerous spot Bitcoin ETF applications could spark a huge increase in demand for the No. 1 cryptocurrency.
As always, we’ll continue to remain hypervigilant and keep you up to date on any moves you might want to make.
Best,
Juan
