Recent headlines have focused on the threat China's faltering economy poses to global expansion. Analysts are skeptical that the Chinese government's actions are a suitable cure for what appear to be fundamental difficulties, which have led to a slowdown in economic activity and a reduction in the flow of credit in the region.
WOULD INVESTORS HAVE FAITH IN THE PRODUCT?
There has been a recent uptick in the stock market, and the PROC's actions, revealed on August 72, are mostly responsible for this. Bloomberg reports that among these actions were:
- Favorable refinancing terms for the real estate industry should help businesses overcome obstacles and stabilize the economy.
- Fee reductions for stock repurchase programs could enhance stock prices and investor confidence.
- To make trading with borrowed funds more accessible to investors, certain trading businesses have reduced their leverage margins.
- Increased regulatory examination of new stock offerings will likely benefit established businesses by limiting the number of potential new competitors.
- Sale restrictions below the initial public offering price for a limited time shield investors from rapid price drops and reduce volatility.
According to Ting Lu, Chief China Economist at Nomura Holdings, it became apparent that the measure first hailed as economic stimulus failed to have the desired effect. The measures "fall short in halting the downward trend," he said, "and their impact will be short-lived unless accompanied by support for the actual economy."
There is evidence of foreign capital fleeing Chinese stocks, in addition to the significant 23.8% decrease in the CSI 300 index since July. Bloomberg reported that on August 28 alone, global funds sold about $1.1 billion worth of shares, contributing to August outflows topping $11 billion and perhaps reaching a record amount.
Why China needs to enact effective economic stimulus packages is the critical question. The value of the local currency may hold the key. The Yuan price chart shows that the value of the Yuan has been steadily declining about the U.S. dollar. This downward trend is worrying since it suggests the currency may soon reach all-time lows.
There is a negative effect on the purchasing power of the Yuan, notwithstanding incentives such as tax cuts, government bond buybacks, and monetary handouts to the population. There is no simple answer to the problem, which could cause China's economic growth to stall dramatically.
THE VALUE OF BITCOIN TENDS TO FALL WHEN THE U.S. DOLLAR RISES THE VALUE
Interestingly, the U.S. stock market will be the principal beneficiary of the outflow of capital from the Chinese stock market, ultimately strengthening the U.S. dollar. When investors move their money away from Chinese equities and into lower-risk investments like the S&P 500 index or U.S. money market funds, the result is typically a depreciation in the value of the local currency.
The scenario above can prove problematic for the cryptocurrency because Bitcoin is priced in dollars and competes with other alternatives for storing value. Those expecting a price increase in cryptocurrencies due to a slowdown in the global economy should keep in mind that the U.S. dollar does not have to be perfect; rather, it simply needs to perform better than other competing fiat currencies to keep its value.
Nevertheless, regardless of the relative strength of the United States dollar in comparison to the currencies of other nations, the dynamics of the market may quickly shift in a different direction once investors become aware that the U.S. stock market may be overvalued or when signs of an impending moderate recession in the United States surface. Consequently, even though it cannot retake the $29,000 support level, the value of Bitcoin as an independent and alternative hedging continues to be relevant.
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