Important takeouts:
China’s central bank stimulus packages could redirect liquidity to cryptocurrency.
The US Treasury yields are rising indications of lower risk aversion, supporting a potential recovery in the Altcoin market.
Central banks stimulate growth by reducing interest rates, enabling special funding conditions, and effectively increasing money supply. This dynamic benefits risk assets such as stocks and cryptocurrencies.
Traders are now questioning whether China’s Central Bank’s next move will provide the liquidity boost that will ultimately drive Altcoins beyond its previous record highs.
Economic stimulus is beneficial for the cryptocurrency market
The 21 share report in March 2025 highlighted an impressive 94% correlation between Bitcoin (BTC) prices and global liquidity, surpassing both the S&P 500 and gold.
Currently, the US M0 monetary base is $5.8 trillion, followed by $5.4 trillion in the eurozone, $5.2 trillion in China and $4.4 trillion in Japan. With China accounting for 19.5% of the world’s domestic production, monetary policy decisions remain important even when the US Federal Reserve controls the headlines.
On Thursday, China reported a 0.1% decline in retail sales in July compared to the previous month. Goldman Sachs estimates that in July alone, investments in fixed assets fell 5.3% year-on-year, the sharpest contraction since March 2020. Meanwhile, industrial production rose just 0.4% that month. City unemployment rates based on a Chinese survey also rose to 5.2% in July, up from 5% in June.
Analysts at Bloomberg Economics Changshu and Eric Zu noted that the People’s Bank of China (PBOC) could introduce stimulus packages “through September.” Similarly, Nomura and Commerzbank economists argued that it would only be a matter of time before a stronger support policy arrives.
Still, even if PBOCs adopt a more expansionist stance, cryptocurrency investors may hesitate if they fear the global recession will intensify.
US consumer sentiment gets worse, but traders aren’t afraid
A University of Michigan consumer survey released Friday showed that 60% of Americans expect unemployment to worsen the following year. However, the market continues to be resilient. The S&P 500 has been closed at a new all-time high, but the Treasury yields for five years are also high, with investors still leaning towards optimism.
Related: Bitcoin’s all-time highest profit disappeared after hours: Why Why
When the recession rises, demand usually becomes an increase in U.S. government-supported assets, allowing investors to accept lower yields. After falling to 3.74% on August 4, the five-year Treasury rebounded to 3.83% on Friday at its lowest level in over three months. The move shows traders are reducing risk aversion, opening up space for Altcoin’s market capitalization rebound.
As China follows stronger stimuli, its additional liquidity could potentially catalyze a broad rotation into risky assets. In such a scenario, pushing from the PBOC could be sufficient to drive cryptocurrency to its all-time high.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
