The equity markets experienced gains after Chinese leaders pledged to bolster the economy through additional stimulus measures, alongside favorable labor market indicators from the U.S. Last week, U.S. jobless claims declined by 4,000, dropping to a four-month low of 218,000, as reported by the Labor Department on Thursday. On the same day, members of the Politburo in China emphasized the necessity to "further improve the focus and effectiveness of policy measures" designed to stimulate the nation's economy.
Wintermute OTC Trader Jake Ostrovskis noted the significance of these developments, saying, "China unleashed another major stimulus measure, as the Politburo vowed to ramp up fiscal spending via $284 billion in special sovereign issuance and committed to implementing 'forceful' interest rate cuts. The improving liquidity environment is leading to structural bullishness, and U.S. spot exchange-traded funds (ETFs) posted their fifth day of inflows." Together, these catalysts have pushed spot prices higher as the market retests the $65,000 threshold, he added.
Despite this upward momentum, Ostrovskis cautioned that the $65,000 mark is pivotal. If that level cannot be sustained, it may lead to significant downward pressure on prices. He noted that the current buildup in open interest could make the market increasingly vulnerable to sharp corrections.
China’s stimulus measures aim to lower borrowing costs and stimulate economic activity. These include cutting existing mortgage interest rates by 0.5% and reducing reserve requirements for banks, thereby enhancing their lending capabilities. Such actions were complemented by measures to ease restrictions on borrowing for stock investments. People’s Bank of China (PBoC) Governor Pan Gongsheng emphasized that these initiatives aim to boost domestic demand and investor confidence.
Nansen analyst Aurelie Barthere observed that bitcoin has underperformed relative to U.S. equities and Chinese stocks since the announcement of Beijing's stimulus packages. Barthere noted that "Hang Seng and Chinese equities have outperformed bitcoin since the stimulus was announced. One reason could be that the Chinese measures primarily affect the domestic economy rather than having a global or U.S. economic impact."
Analysts at Bitfinex also expressed concerns regarding market uncertainty. Tail risk assets, including bitcoin, are not attracting passive flows at the moment. Uncertainty needs to reduce for asymmetric passive demand to return to Bitcoin flows," the Bitfinex analysts told The Block.
Disclaimer: Evgeny Gaevoy, the founder and CEO of Wintermute, previously sat on The Block’s board of directors from April 2023 to early November 2023 and remains a minority shareholder.
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