Bitcoin Prices Show Positive 30-Day Correlation With China’s Central Bank Balance Sheet

The People’s Bank of China (PBOC) currently holds approximately $6.22 trillion in U.S. dollars in its accounts. At this moment, the 30-day relationship between bitcoin’s value and the size of the PBOC’s balance sheet, as measured by TradingView, is about 0.66. This correlation has mostly been positive, with brief exceptions in 2016 and from late 2022 to 2023. On a different note, at the present time, bitcoin shows a -0.88 correlation over 30 days with the Federal Reserve’s balance sheet, which is the lowest recorded since 2016.

In simpler terms, a strong correlation refers to a correlation coefficient ranging between 0.6 and 0.9, while an extremely strong correlation is indicated by a coefficient between 0.8 and 1. Correlation coefficients quantify the degree to which two variables change together, and they are valuable in financial markets for forecasting or monitoring asset price trends.

It’s worth noting that a strong relationship exists, as earlier this week, the People’s Bank of China (PBOC) mentioned plans to infuse up to 1 trillion yuan ($142 billion) into its major state-owned banks. This move is intended to boost their ability to sustain the economy during tough times.

The mainland banks’ reserve requirement ratio was reduced by 0.5% (half of one percent), and their seven-day reverse repo rate, or the interest rate at which the central bank lends money to commercial banks, was lowered by 20 basis points to 1.5%.

This week, Bitcoin has seen a nearly 3% increase, and for the month, it’s up over 10%. As per CoinDesk data, I’m quite pleased with these gains. Meanwhile, Asian stocks, particularly China, have experienced a significant surge following the PBOC’s stimulus package. The CSI 300 Index of large-cap shares skyrocketed by 4.5% on Friday alone, pushing this week’s gain to an impressive 16%, marking one of the biggest runs since 2008.

Similar to the U.S., China’s stimulus package is designed to decrease unemployment rates and encourage business expansion. This influx of funds might potentially increase the value of Bitcoin, particularly from a long-term perspective, according to market analyst Nick Ruck in a message sent to CoinDesk on Friday.

According to Ruck, the potential impact could cause a rise in investments towards blockchain businesses, encompassing mining technology and new ventures. Additionally, certain investment funds might gain access to cryptocurrency-associated opportunities overseas, like stocks of companies listed in Hong Kong or Exchange Traded Funds (ETFs) there.

In the forthcoming months, it’s anticipated that not just Bitcoin, but other riskier investments may also experience an increase due to the perceived positive impact on their value.

“Global risk markets are given the go-ahead as U.S. equities reach new highs for the third time this week, boosted by a quick succession of stimulus packages aimed at reviving China’s economy, according to Augustine Fan, head of insights at SOFA. This development has prompted analysts to adopt a bullish stance on all risky assets, suggesting a coordinated easing trend around the world that resembles the easy-money days during the Quantitative Easing (QE) period.

To put it simply, crypto prices continue to mirror stock market movements. But lately, there’s been a shift in investor attitude towards buying dips, suggesting a bullish outlook. The potential benefits appear to outweigh the risks, with few factors that might trigger a downturn at present,” Fan explained.