Stocks tied to China fell sharply on Tuesday after Beijing decided to delay new stimulus measures aimed at supporting the economy.
QCP Capital analysts see the downturn as a potential opportunity to reallocate capital into the cryptocurrency market. “As the China rally fades, we expect capital to reallocate into cryptocurrencies, reflecting the sector’s growing maturity as an alternative risk asset,” they said.
During the Asian trading session, Chinese companies traded on the Hong Kong Stock Exchange, including Alibaba Group and JD.com, experienced sharp declines of about 8% and 12%, respectively. The MSCI AC Asia Pacific Stock Index recorded its biggest drop in a month, while the Hong Kong stock market faced its biggest one-day drop since 2008. In addition, the Chicago Board Options Exchange Volatility Index surged 15% to 22 points, reflecting the increased market uncertainty.
However, despite the increase in the VIX, analysts noted that crypto derivatives market expectations for future Bitcoin price volatility are currently lower than recent realized volatility, suggesting that traders do not expect major price moves in the near term. They said: "In derivatives markets, cryptocurrency volatility remains stable, with front-end implied volatility at 43%, a 3 vol discount to 7-day historical realized volatility.
China's monetary easing policy and its impact on global markets
Investors had expected China's national economic planning agency, the National Development and Reform Commission, to announce additional stimulus measures at a briefing on Tuesday. However, NDRC Chairman Zheng Shanjie did not reveal new stimulus measures and told a news conference in Beijing that he was "fully confident" that China's economy would achieve its official full-year growth target of about 5%.
Today’s market decline comes after China-related stocks rallied for nearly two weeks after Beijing announced a series of economic stimulus measures in late September aimed at lowering borrowing costs and spurring economic activity. The measures included a 0.5 percentage point cut in interest rates on existing mortgages and a reduction in banks’ reserve requirement ratios to encourage lending.
Pan Gongsheng, governor of the People's Bank of China, stressed that the measures are aimed at stimulating domestic demand and financial markets and boosting investor confidence. However, growth in the world's second-largest economy continues to slow, marked by a sluggish real estate market and falling prices.
Over the past 24 hours, gold has risen 0.2% to $2,648.7 per ounce, while bitcoin has traded flat, currently changing hands around $62,400, according to bitcoin price data from The Block.
CoinRay's opinion:
The correction of my country's stock market is a key step towards a more stable rise, and the A-share bull market may just be the beginning. I believe that foreign capital with a keen sense of smell has already noticed it. This means that the short-term correction of the A-share market may attract greater international capital inflows.
Currently, foreign capital mainly flows in from India, the United States and active capital countries in the Asia-Pacific region (Japan, South Korea, etc.). Therefore, we have reason to suspect that many risky assets that rely on liquidity to survive, including US stocks and the crypto market, will be in a state of continued "downturn".
Data analysis
According to Coinglass data, there was a "panic" sell-off of about 4,000 BTC in the early morning of October 8, Beijing time. Although the momentum has eased, it is still most likely driven by retail investors.
According to previous market news, BTC whales’ holdings have decreased by about 30% ($6 billion) in the past few months, and the sell-offs have been “taken over” by new whales (retail investors or swing traders). This means that market volatility will continue to increase due to the “instability” of holders.
When will the crypto market regain strength?
Bileizhen believes that the real large-scale outbreak of the crypto market will come after the results of the US election. Because their current primary goal is to maintain inflation data and employment rate, the Federal Reserve and the Treasury Department are unlikely to introduce economic policies to increase liquidity at this stage.
Of course, this does not mean that the crypto market will fall too much. On the contrary, this may be the "darkness before dawn", and there will be very suitable long-term gaming opportunities.
