China's Economic Slowdown Sparks Increased Interest in Bitcoin as Investors Seek Alternatives

China's economy is slowing down significantly. This year, it might not even hit its already low target of 5% growth. This shift could have big implications for Bitcoin, possibly acting as a hidden bullish factor as Bitcoin prices look to gain momentum after a few months of stagnation.

1. Chinese Investors Are Seeking Alternatives

With asset bubbles forming in China, many investors are turning to gold as a safer bet. Chinese equities and real estate are struggling, which has created a premium on moving money out of the country. In 2022, Chinese savers put away over $2.6 trillion in domestic banks. But now, with interest rates going down and more stimulus coming in, this behavior might change. The high savings rate in China could push investors towards Bitcoin and other cryptocurrencies, seeking financial freedom and a way to exit the Chinese system.

Since exchanges are banned in Mainland China, many people are using over-the-counter (OTC) trading to buy Bitcoin. Some buyers use exchanges with different addresses, but larger investors often prefer OTC desks. These desks have seen record inflows since 2021, bouncing back from the restrictions on Bitcoin mining and trading.

2. Central Bank Stimulus is Increasing

China's economic downturn is putting pressure on authorities to turn things around. Youth unemployment is alarmingly high. In response, the central bank is lowering interest rates and loosening the money supply. This move could help Bitcoin, as it correlates with risk assets. Investors in China are moving back to equities, which are more closely tied to Bitcoin's price. Meanwhile, the Federal Reserve in the U.S. is also cutting rates and expanding the money supply. This allows the Chinese central bank to lower rates without worrying about the Yuan's value against the dollar, potentially leading both currencies to weaken against Bitcoin.

3. Chinese Businesses Remain Key to Bitcoin

Despite restrictions, about 20% of the global Bitcoin hash rate still comes from China. Local governments are struggling to raise tax revenue due to falling land values. They see working with companies that can turn stranded power into tax revenue as an attractive option. This situation helps maintain a significant portion of the global hash rate securing the Bitcoin network in China.

Companies like Bitmain and other mining firms started in China. While they’ve moved much of their manufacturing overseas due to tariffs and restrictions, they still have offices in China. Many mining pools and exchanges, such as Binance and Huobi, originated there too. As the economy faces challenges, the entrepreneurial spirit that initially boosted Bitcoin in China may reignite, leading to increased buying activity. Chinese entrepreneurs and businesses may once again play a vital role in Bitcoin's ecosystem.