China’s Rising Credit Impulse Could Mean Big Things for Bitcoin

In the Brief:

  • China's credit impulse has increased, which benefits bitcoin and risk assets
  • The rise bodes well for traders and global asset prices
  • In the past, bitcoin trend changes have been accompanied by credit expansion in China
  • Liquidity injections are expected to propel crypto and risk assets
  • The credit cycle in China is expected to continue to recover, which could increase shadow bank credit and equity financing
  • Traders should monitor trends closely to manage risks and seize opportunities by taking positions in bitcoin and risk assets.

3 - 5 minute read

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China’s increased credit impulse is expected to bode well for bitcoin and other risk assets, providing traders with new opportunities as China returns to its pre-pandemic credit expansion. According to MacroMicro, China’s credit impulse index has increased from 24% to 26% this year, indicating a significant shift in credit expansion relative to the growth rate. A continued rise in China’s credit impulse could signal expanding global asset prices and credit, supporting global risk sentiment, and providing new investment opportunities for traders.

Historically, there has been a strong correlation between China’s credit impulse and Asian equity markets, with bitcoin also impacted by these trends. In previous instances of renewed credit expansion in China, major bearish-to-bullish trend changes have coincided with bitcoin’s trend reversals in the same direction. As such, the continued rise in the credit impulse may bode well for bitcoin.

Bitcoin has gained over 70% this year amid renewed uptick in China’s credit impulse, repeating a historical pattern. The shaded portion represents U.S. recession. (MacroMicro/CoinDesk) (MacroMicro/CoinDesk)

Data released on Tuesday showed that China’s new bank lending hit a record high of 10.6 trillion yuan ($1.54 trillion), up 27% from the first quarter of 2022. As a result, David Brickell, director of institutional sales at crypto liquidity network Paradigm, expects “this tidal wave of liquidity will continue to propel risk assets and crypto” as China’s recent liquidity injections come into play.

Chi Lo, senior market strategist APAC at BNP Paribas Asset Management, shares this outlook, stating that “China’s credit cycle has bottomed out. It looks set to continue to recover as shadow bank credit and equity financing – two components of aggregate financing that account for more than one-third of the total – are increasing.”

The Bottom Line

Traders should consider taking positions in bitcoin and other risk assets as China’s renewed credit expansion impacts global financial cycles and supports global risk sentiment. With a continued rise in the credit impulse expected, traders will be well-placed to benefit from these trends. However, as with all investments, traders should closely monitor market trends and be prepared to adjust their positions as necessary to seize new opportunities and manage risks.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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