China’s Sickness Spells Good News for Crypto

By Juan Villaverde

We’ve all heard the saying: “When China sneezes, the world catches a cold.” Well folks, I hate to be the bearer of bad news, but China is not just sneezing — it might be coming down with a full-blown flu. 

Enter the Chinese Communist Party, currently playing twister with its economy, and frankly, it seems a bit tangled up. 

Top of its “Oops, We Did It Again” list is the housing sector, which seems to be taking a nosedive faster than my enthusiasm for this year's New Year's resolutions. And its plan to fix it isn’t any better. The idea is to cut interest rates. 

Not only is that the economic equivalent of slapping a fancy plaster on a burst pipe ... it also undermines the yuan, which plunged as footloose domestic capital sought safer shores abroad.

See, the yuan has been suffering lately. And the best way to rescue it is to raise interest rates to entice investors … the exact opposite remedy to the economic strain brought on by the falling housing sector.

It's a little like watching someone try to pat their head and rub their stomach simultaneously, except instead of giggles, we get global economic reverberations. 

I’ll give them credit for the effort, though. With billions pumped in, it’s still dancing around the 7.3 yuan-to-dollar tango. But anyone with an ounce of sense can see that its dance card is nearly full. 

And as the property market crashes, the currency conundrum only gets spicier. It’s in a sticky situation, and I’m betting my last cookie that it’s the yuan that’ll slip first. 

Let’s face it, no matter how deep Beijing's pockets are, there’s a bottom somewhere, and it might just be feeling it soon. 

But here in crypto, we don’t have to worry about the sickness catching ... Because my crystal ball is indicating that before 2023 ends, the People’s Bank of China will reverse course and fire up those money printers again, reversing its current policy to save its currency.

And when China prints, crypto rips. 

With extra liquidity getting pumped into a major market and economic clouds still on the horizon, we can expect some of that capital finding its way into the decentralized crypto market, where no central bank can infect it.

Alex Benfield’s Notable News, Notes & Tweets
By Alex Benfield

• Unlike the past bear market where stablecoin market cap continued to climb as investors sought out juicy DeFi yields, this time around stablecoin market cap is slimming down. 
   
   However, with the new PayPal (PYPL) USD stablecoin, adoption may start ticking upward once again.
   
• Remember when the biggest knock against Bitcoin was its inefficient energy use? Well, now miners are getting very creative with ways to harness excess energy and could actually help cut down on global emissions!
   
• Contrary to what Rolling Stone might think, NFTs are not dead. The volume is still pouring in as investors remain excited. 
   
   Will NFTs break their all-time highs in the next bull market? That will certainly be an interesting storyline as the market progresses. 

What’s Next

As China grapples with its financial challenges, the possibility of it resorting to money printing before the year closes is palpable. This move, aimed at stabilizing its economy, could inadvertently serve as the booster crypto enthusiasts have been eagerly anticipating. 

If China's monetary easing precedes that of the U.S., the ripple effect on the cryptocurrency market could be profound, positioning assets like Bitcoin (BTC, “B+”) and Ethereum (ETH, “B”) for significant appreciation.

And believe me when I say the U.S. will follow suit. While we may still be months away from the Federal Reserve even starting to cut interest rates, the eventual deployment of the money printer seems almost inevitable. 

This, coupled with the impending potential approval of the numerous new crypto ETFs, could further fan the flames of a burgeoning crypto bull market. 

Investors must remember to remain patient. The timeline for these economic machinations might span multiple months, but their convergence will likely vindicate the foundational principles of cryptocurrencies. 

The upcoming phase promises to be transformative for the digital asset landscape, and I, for one, am excited to witness it.

Best,

Juan