China prepares to lower rates: A major bullish signal for Bitcoin?

Financial markets are at the dawn of a new cycle of monetary easing, marked by strategic decisions by major central banks. After the American Federal Reserve, which began reducing its key rates last September, it is now the People’s Bank of China (PBOC) which is preparing to take over. Beijing plans to further cut interest rates to stimulate the economy and counter increased deflation of the yuan, a phenomenon that worries Chinese authorities and weighs on investor confidence. Faced with this situation, Arthur Hayes, co-founder of BitMEX and macroeconomic analyst, anticipates a chain reaction on the financial markets. He says the combination of looser monetary policy in China and a favorable environment in the United States will increase the appeal of alternative assets, particularly bitcoin and cryptos. According to him, this injection of liquidity, combined with a reorientation of institutional capital, could trigger a massive rally in the crypto market during this year 2025.

China on the verge of further easing monetary policy

For several months, the People’s Bank of China (PBOC) has been sending clear signals in favor of monetary easing. During its fourth quarter meeting, the institution confirmed, in a press release published on Friday January 3, 2025, its intention to once again reduce its key rates as well as the bank reserve requirement ratio. This announcement is part of a strategy which aims to stimulate the economy, while Chinese growth is showing signs of weakness.

This monetary shift can be explained by several factors. For several quarters, Chinese domestic demand has been crumbling, which is impacting consumption and investments. To stop this dynamic, the PBOC had already lowered its rates last September. It increased them from 1.7% to 1.5%. However, these measures are proving insufficient in the face of sustained deflation of the yuan, which is increasing the debt burden for many companies. In a new press release, the central bank clarified that these adjustments would take place “in due time”, as it emphasizes the need to support credit and prevent excessive contraction of the real estate and financial market.

At the same time, the American Federal Reserve is adopting a similar posture. After a phase of monetary tightening intended to contain inflation, the Fed began a rate reduction cycle in September 2024. This convergence between the monetary policies of the two largest economic powers in the world reinforces expectations of a more favorable environment for risky and alternative assets, including cryptos. Many observers believe that this injection of liquidity could benefit bitcoin, by strengthening its attractiveness as a store of value in the face of fluctuations in traditional currencies.

Bitcoin at the forefront of this liquidity injection

Arthur Hayes, co-founder of BitMEX, sees this Chinese monetary easing as a major opportunity for the crypto market. According to him, the reduction in key rates in China will encourage a massive influx of capital towards safe havens, notably gold and bitcoin. He explains that in a context of devaluation of fiat currencies, investors will seek to protect their capital through the choice of alternative assets.

In a post published on Medium, he expands on this analysis and asserts that “when China deploys its monetary bazooka, American institutional investors will have no choice but to buy Bitcoin ETFs”. He considers that bitcoin now represents “the best performing asset in the face of the devaluation of fiat currencies”, a reality that large fund managers can no longer ignore. This statement is based on a key observation: recent rate cuts by the US Federal Reserve have already generated a significant rise in the price of bitcoin.

Last September, after the announcement of the Fed’s first monetary easing, bitcoin crossed the threshold of $60,000, which constitutes a renewed interest in this asset. Since then, the crypto has reached a record $100,000, a rise largely attributed to its status as a store of value in the face of monetary uncertainties. Hayes also points out that this dynamic is accompanied by increased flows into US Bitcoin ETFs and a rising Coinbase Premium Index, two indicators that show a massive return of institutional investors to crypto.

If Arthur Hayes’ predictions come true, 2025 could be a historic turning point for bitcoin and the entire crypto market. The increase in flows to American Bitcoin ETFs and the progression of the Coinbase Premium Index already confirm growing interest from institutional investors. However, several uncertainties remain. Crypto regulation remains a key variable, and tougher policies could slow this upward momentum. Furthermore, a rebound in inflation could force central banks to review their monetary strategy, which would thus limit the impact of available liquidity. Economic tensions between China and the United States add a geopolitical dimension that could influence investors’ appetite for risky assets. Despite these uncertainties, a trend is emerging: bitcoin is increasingly establishing itself as an essential asset in global macroeconomic strategies. As central banks adjust their policies, crypto could well play a central role in redefining global financial balances.

Luc Jose A.

A graduate of Sciences Po Toulouse and holder of a blockchain consultant certification issued by Alyra, I joined the Cointribune adventure in 2019. Convinced of the potential of blockchain to transform many sectors of the economy, I took the commitment to raise awareness and inform the general public about this constantly evolving ecosystem. My goal is to enable everyone to better understand blockchain and seize the opportunities it offers. I strive every day to provide an objective analysis of current events, to decipher market trends, to relay the latest technological innovations and to put into perspective the economic and societal issues of this ongoing revolution.