China is considering injecting one trillion yuan (about $142 billion) into its largest banks to help prop up its slowing economy. This could trigger a surge in the price of Bitcoin (BTC).

The capital increase is aimed at strengthening banks’ ability to lend and stimulate growth as the country grapples with weaker economic performance. The deliberations come shortly after the U.S. Federal Reserve implemented a 50 basis point rate cut.

China plans to inject $1 billion into banks

Bloomberg reported the deliberations, citing people familiar with the matter. According to the report, China will raise the funding from new sovereign bonds. Once that happens, it will be the first time since the 2008 global crisis that Beijing has injected such a significant amount of money into big banks.

These plans come as the Chinese economy continues to struggle, with banks having already implemented interventions such as significant reductions in mortgage rates and cuts in key policy rates.

Read more: Bitcoin Price Prediction 2024/2025/2030

While those interventions have allowed the six biggest banks to boost their capital levels beyond requirements, Industrial and Commercial Bank of China Ltd. and Bank of China Ltd., which had been brought in as lenders to support the economy, now face record-low margins, falling profits and rising bad debt.

Thus, the general perception is that the US$1 billion capital injection will significantly contribute to increasing the banks' ability to support the country's economy.

China Bank Margins. Source: Bloomberg

“This is a different kind of stimulus. If done through issuing special bonds, it is a fiscal stimulus and can stabilize banks as property prices continue to fall. This will ensure that banks’ lending capacity is not affected,” Bloomberg reported, citing Hao Hong, chief economist at Grow Investment Group.

China stimulates economy

Chinese regulators have also been urging the country’s big banks to support the struggling economy. They are calling for cheaper loans for risky borrowers, which could be beneficial for risky assets like Bitcoin (BTC).

In fact, cheaper and therefore easier borrowing, which essentially means lower interest rates, could help stimulate spending and investment. This increased liquidity could benefit riskier assets like Bitcoin and stocks, which typically see gains when borrowing costs fall.

The founder of the now-defunct Three Arrows Capital, Su Zhu, also noted the possible implication of the fiscal aid. He hinted that cryptocurrency prices could benefit from the capital injection.

These observations and waves of optimism come as Bitcoin’s price has a history of being closely tied to global liquidity. This, according to economist Lyn Alden, suggests that the Chinese stimulus package could inspire a surge in value for crypto.

Meanwhile, it’s impossible to ignore China’s 2021 cryptocurrency ban following a hostile stance against digital assets since 2013. Triggers ranged from financial crime, economic instability to capital flight from its markets as users bypassed conventional restrictions.

Given this scenario, some question whether the $1 billion tax relief could affect cryptos.

“What does China’s bank injection have to do with Bitcoin? They’re not allowed to buy Bitcoin with that money as far as I know,” one X user said.

However, there are reports of a backlash against this ban, with Chainalysis reporting a $75.4 billion Bitcoin bet by Chinese traders. Over-the-counter crypto brokers in China continue to see increasing inflows, reaching as much as $20 billion quarterly. In the past nine months, they have seen a total of $75.4 billion in inflows.

The article China could trigger Bitcoin’s rise with help to banks was first seen on BeInCrypto Brasil.