Crypto Market Analysis: The Effects of Chinese Stock Surge on Cryptocurrency

Crypto Market Analysis- the Temporary Capital Shift from Crypto to Chinese Equities

Crypto Market Analysis– As HBO’s documentary approaches, memecoins themed around Len Sassaman are surging, driven by speculation about Bitcoin’s creator. However, this surge may be drawing capital away from the broader crypto market, limiting Bitcoin’s potential gains and impacting other Asian markets, according to market observers.

The current rise in Chinese stocks, fueled by a stimulus package and heightened investor activity during the national holiday week, presents a calculated risk-reward scenario for savvy investors. Even with a 3-5% conversion cost from stablecoin USDT to equities, the potential upside of 50-70% makes this a strategic move, said Danny Chong, co-founder of a multi-staking protocol and Digital Assets Association Singapore, in an email to CoinDesk.

Additionally, the Beijing Bazooka is attracting capital from other Asian equity markets. We are reducing our long positions across Asia to finance purchases in China, stated Eric Yee, senior portfolio manager at Atlantis Investment Management in Singapore, to Bloomberg.

Since September 24, the Shanghai Composite Index has surged over 20%, reaching its highest point since May 2023. The Hang Seng China Enterprises Index, which includes Chinese stocks listed in Hong Kong, has risen over 25%, according to TradingView data. This rally follows stimulus announcements that included interest rate cuts, liquidity support for stocks, capital injections into the banking system, and commitments to support property prices.

The massive stimulus, estimated at over 7.5 trillion yuan (CNY), has been viewed as extremely bullish for Bitcoin and other risk assets. However, Bitcoin has remained stable around $64,000 following the stimulus, continuing a six-month consolidation period between $50,000 and $70,000.

Temporary Shift

Chong believes the capital shift is likely to be temporary, with investors eventually refocusing on cryptocurrencies. This shift is likely to be short-lived. Once the peak of the recent rise in Chinese equities stabilizes, we can expect to see capital redeployed back into crypto. This illustrates the evolving mindset of investors who are keen to move across asset classes to optimize their returns, Chong explained.

Traditional market analysts assert that Beijing’s recent stimulus may not adequately address fundamental economic issues, potentially leading to a lackluster rally in Chinese stocks. Looking beyond the short-term sentiment boost, the effectiveness of these measures could diminish unless fundamental problems are addressed, particularly the need to repair damaged balance sheets, especially those of banks. Until that happens, efforts to boost borrowing and encourage risk-taking are likely to falter, TS Lombard noted in a client report on October 2.

The firm added that the latest measures account for only 1.5% of China’s gross domestic product, compared to 32% in 2008 and 22% in 2015-16, suggesting that the spillover effects from this stimulus may be limited.

BCA Research echoed this sentiment last week, indicating that the rally in Chinese stocks may lack sustainability.