Bitcoin stable despite China rate cut not boosting risk-taking.
On Tuesday, Bitcoin (BTC) saw little change in its trading as China’s first cut in benchmark lending rates in 10 months failed to boost traditional markets’ mood. The People’s Bank of China (PBOC) reduced the one-year and five-year loan prime rates by 10 basis points (bps) to 3.55% and 4.3%, respectively. The one-year rate refers to medium-term lending for corporate and household loans, whereas the five-year figure is the reference rate for mortgages. Last week, China’s biggest state banks also cut rates on demand deposits by 5 bps and 15 bps on three- and five-year time deposits. A basis point is a hundredth of a percentage point.
These looser conditions in China are in contrast to continued monetary tightening in western economies and follow recent economic reports that indicate the world’s second-largest economy is losing steam and is on the brink of deflation.
Bitcoin, which is a pure play on liquidity, struggled to find upside direction. The largest cryptocurrency by market value changed hands near $$26,819 at 07:27 UTC after failing to keep gains above $27,150 during Asian trading hours, according to blockchain data.
Other markets were also affected: the Australian dollar, which is sensitive to the Chinese economy due to the strength of trade ties between the two countries, fell 0.7% against the U.S. dollar, and China’s benchmark equity index, CSI, traded flat to negative. MSCI’s broadest index of Asia-Pacific shares outside Japan fell more than 0.5%, and S&P 500 futures traded 0.3% lower. This risk-off action suggests that investors are unsure the rate cuts will be enough to support the slowing economy and are looking for a bigger stimulus package.
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“That could be the market’s way of saying that the rate cuts are telling of more problems than it being a solution to China’s recent economic struggles,” ForexLive’s analyst Justin Low said in a market update.
Some cryptocurrency observers say that a larger China stimulus could compensate for the hawkish biases of the U.S. Federal Reserve, the European Central Bank, and others, eventually pushing risk assets higher.
“Reports also suggest that China is readying 1 trillion yuan stimulus package. This is BIG news as it relates to global liquidity,” David Brickell, director of institutional sales at crypto liquidity network Paradigm, said in the latest edition of Macro Pulse. A trillion yuan is about $140 billion.
“If global liquidity is rising, bitcoin should start to pump hard from here,” Brickell added.
Edited by Sheldon Reback.