Highlights of this article:
- The economic stimulus policies launched by the Chinese government led to a sharp rise in the Shanghai Composite Index.
- The stimulus policy shifted investment away from the cryptocurrency market, especially Bitcoin, causing its price to fall.
- Many analysts believe that the shift of funds to Chinese stocks is temporary.
Chinese stocks have surged, driven by the Chinese government's recent stimulus measures aimed at reviving the flagging economy. Both the Shanghai Composite Index and the Hang Seng China Enterprises Index have posted significant gains. However, the stimulus has not boosted the cryptocurrency market as some had expected, but has instead diverted investment away from the market, especially Bitcoin.
The question now is: Is this funding shift temporary?
China stocks surge on stimulus push
China's main stock indexes, the Shanghai Composite Index and the Hang Seng China Enterprises Index, have both risen sharply since the government launched its economic stimulus plan.
On September 24, Pan Gongsheng, governor of the People's Bank of China, announced a plan to rescue an economy that is at risk of collapse. The announcement rekindled hopes that China can still achieve its 5% growth target this year after multiple reports revealed the severe challenges facing the economy.
On September 24, the Shanghai Composite Index was at 2,770.43 points. Since then, the index has risen to 3,336.49 points, an increase of 20.43%. Previously, the market was basically stagnant until September 13. However, starting from September 18, strong buying drove the market's positive trend, which has continued to this day.
The Hang Seng China Enterprises Index followed a similar pattern, although buyers entered the market around September 10. At that time, the index was at 6,036.14 points. Before the stimulus policy was announced, the index had reached a high of 6,723 points that month. Since then, the index has risen by 23.9% to 8,330.85 points.
Investors flock to Chinese stocks
Recent reports suggest that investors are moving money from stablecoins like USDT into Chinese stocks, eager to cash in on the market rebound. The shift has reduced investment flows into the cryptocurrency market, especially Bitcoin.
On September 24, Bitcoin (BTC) was trading at around $64,253. Despite a brief rise to $65,903 on September 28, it subsequently fell sharply, hitting a low of $60,658 on October 2. The market has struggled to recover, and BTC is currently trading at $63,432.63, significantly lower than when China’s stimulus was announced.
Is China's Stock Market Limiting Bitcoin's Growth?
Some analysts believe that the focus on the Chinese stock market has limited the growth of Bitcoin. Danny Chong, co-founder of the Singapore Digital Asset Association, believes that this capital shift is temporary. He expects the cryptocurrency market to regain momentum once the Chinese stock market stabilizes.
However, others are skeptical about the long-term impact of China's stimulus. Analysts at TS Lombard and BCA Research question whether the stimulus can solve the deep-seated problems of the Chinese economy. They are also unsure whether the current rebound in stocks can last.
Bitcoin’s decline may be short-term
While the surge in China’s stock market may temporarily pull investment away from Bitcoin, many analysts do not believe the shift will last. As the Chinese market stabilizes, funds are expected to flow back into the cryptocurrency market, reigniting the bullish trend for Bitcoin and other digital assets.
