China Is Collapsing and That is Good for Crypto

The second-largest economy in the world, China, with a gargantuan GDP of $18 trillion, has been experiencing seismic changes in its financial system that are projected to unexpectedly impinge on the global cryptocurrency market.

Despite everything recently has been revolving around Bitcoin ETFs and the U.S. Federal Reserve’s decision in regards to monetary easing policies, there is a major change afoot that is brewing from across the Pacific Ocean.

The economic system in China is undergoing turmoil and the prescription to that been is assumed to be massive economic stimulus by the part of the government, should the action take place it will be injecting liquidity in the overall global market that will span to Bitcoin.

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The Scale of China’s Economy

Industrialization, urbanization, and consumer spending have enabled China to be an economic juggernaut since the 1980s.

It became the world’s workshop, making cheap products that drove global expansion. This year alone (2023), the U.S. imported around $448 billion worth of Chinese goods.

That is, for context, bigger than the GDP of nations such as New Zealand or Denmark.

China has prospered economically over the years, lifting 800 million people out of poverty and emerging as a global superpower.

Unfortunately, all good things end. With slow growth being among the biggest global economic concerns, all eyes have turned to China and its slowing economy.

Cracks in China’s Economic Engine

The warning signs have been here for a while; late on Monday came fresh evidence of the gathering crisis as Chinese data showed industrial output slowing, retail sales depression, and property prices sagging.

China’s industrial output rose only 4.5% in August; after July, the figure was up 5.1%, instead of adding to expectations. Retail sales were only up 2.1% this month, a big decline from October and well below expectations from economists.

Things are looking even bleaker in the housing market, where property prices have been dropping for more than a year, and August marked the biggest tumble in over nine years.

The property sector, once a model of China’s economic miracle, is sticky at best. New home prices fell by 5.3% year-on-year, marking the 14th straight month in which they have declined. The property market can often feel like a major weight on an economy it.

How Could China’s Struggles Benefit Bitcoin?

To illustrate the issues within its economy, one must ask: How does this affect Bitcoin?

Recessions are often followed by monetary stimulus efforts from the central bank to increase liquidity.

This new money would raise global liquidity, in other words, the amount of money that goes around the system.

So, it makes sense that more money would result in an overall increase in asset prices as investors diversify parts of their investments to alternative assets like Bitcoin (BTC).

If the market has enough liquidity, this could launch the price of Bitcoin through the roof.

A Perfect Storm of Liquidity

The U.S. Federal Reserve has been on the move and there are some who believe that we will see $300 billion to $1 trillion injected into the market before the end of the year.

If both China and the U.S. start firing up their printing presses then the impact on risk assets such as Bitcoin could be massive, and all bets are off.

BitMEX co-founder Arthur Hayes suggested earlier that the synergy between an expected new stimulus package in China and the actions taken by the U.S. Treasury could spark a significant price pump for Bitcoin.

Others see $200,000 as a topWhile Hayes has forecasted a $1 million Bitcoin price target for 2025.

Nonetheless, this joint economic stimulus from these global superpowers is bound to increase demand for Bitcoin as a desirable asset.

China’s Economic Challenges Aren’t Over

Although a Chinese stimulus has the potential to briefly spike Bitcoin, the standing economic position of China remains shaky going forward.

It also has a number of structural problems — an aging workforce and a declining population among them. There will be fewer and fewer people coming to work in the future because of demographic trends, leading to labor deficiency.

This in turn lowers productivity and limits economic growth, the OECD concluded.

The reality is that China’s reliance on industrialism and cheap production has reached the point where it needs to change.

A transformation in the global economy is underway, focusing on automation, Artificial Intelligence and service- oriented industries.

China is a leader in AI and robotics, which may mitigate this issue somewhat, but it remains to be seen if that will be enough to overcome the broader economic challenges.

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