China’s $142 Billion Fiscal Aid May Trigger Bitcoin Bull Run

By admin On Sep 26, 2024

China is considering injecting one trillion yuan (about $142 billion) into its largest banks to help support its slowing economy. This capital boost is aimed at strengthening the banks’ capacity to lend and stimulate growth, as the country grapples with weaker economic performance.

The deliberations come shortly after the US Federal Reserve implemented a 50 basis points rate cut.

China Plans $1 Billion Capital Injection To Banks

Bloomberg reported the deliberations, citing people familiar with the matter. Based on the report, China will source the funding from new sovereign bonds. Once it happens, it will mark the first time since the global crisis in 2008 that Beijing has injected such a hefty sum into big banks.

These plans come as the Chinese economy continues to struggle. Accordingly, banks have already implemented interventions, such as significant mortgage rate reductions and slashing key policy rates.

While these interventions have seen the top six banks build their capital levels beyond requirements, the Industrial & Commercial Bank of China Ltd. and the Bank of China Ltd., which had been brought in as lenders to support the economy, now endure record low margins, dwindling profits, and rising bad debt.

China Banks’ Margins. Source: Bloomberg

Accordingly, the general perception is that the $1 billion capital injection will go a long way in increasing the banks’ capacity to support the country’s economy.

“This is a different type of stimulus. If done through special bond issuance it is a fiscal stimulus and can stabilize the banks as property prices continue to decline. It will ensure that the banks’ lending capability won’t be affected,” Bloomberg reported, citing Grow Investment Group head economist Hao Hong.

Chinese regulators have also been calling on the country’s big banks to support the struggling economy. They appeal for cheaper loans to risky borrowers, which could play well for risk-on assets like Bitcoin (BTC).

Indeed, cheaper and, therefore, easier loans, which essentially means reduced interest rates, could help stimulate spending and investment. This increased liquidity can benefit riskier assets like Bitcoin and stocks, which often see gains when borrowing costs drop.

Su Zhu, the founder of the now-defunct Three Arrows Capital, also noted the possible implication of fiscal aid. He insinuated that crypto prices could benefit from the capital injection.

These remarks and bouts of optimism come as Bitcoin’s price has a track record of being closely tied to global liquidity. This, according to economist Lyn Alden, suggests that the Chinese stimulus package could inspire a value surge for crypto.

Meanwhile, it is impossible to overlook China’s crypto ban in 2021 after a hostile stance against digital assets dating back to 2013. Triggers ranged from financial crime, economic instability, and capital flight from its markets as users bypassed conventional restrictions. Against this backdrop, some question whether the $1 billion fiscal aid could affect crypto.

“What does China injecting money in their banks have to do with Bitcoin? They are not allowed to buy Bitcoin with that money afaik [as far as I know],” one X user said.

However, there is reportedly an uprising against this ban, with Chainalysis reporting a $75.4 billion bet on Bitcoin from Chinese traders. Over-the-counter crypto brokers in China continue to record growing inflows, reaching up to $20 billion quarterly. In the last nine months, they saw a total of $75.4 billion in inflows.

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