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

China's economy is slowing down significantly. This year, it might not even hit the already low goal of 5% annual growth. This change is important and could affect Bitcoin in several ways. It might actually boost Bitcoin prices as they try to regain momentum after a few months of stagnation.

Investors in China are looking for better options. With asset bubbles forming, many are turning to gold. Since Chinese stocks and real estate are struggling, investors want to move their money elsewhere for better returns. In 2022, Chinese savers put away over $2.6 trillion in local banks. But as interest rates drop and stimulus measures come into play, this behavior may shift. With a high savings rate, unique to China, investors might seek new places to invest. Many are showing interest in Bitcoin and cryptocurrencies as a way to escape the Chinese financial system and gain more freedom in transactions.

Due to a ban on exchanges in Mainland China, over-the-counter (OTC) trading has become a popular method for buying Bitcoin. While some buyers use exchanges with different addresses, large investors often prefer OTC desks. These desks have seen record inflows since 2021, bouncing back from restrictions on Bitcoin mining and trading. The recent rise in demand seems driven by lower returns on traditional Chinese assets.

The central bank is responding with more stimulus. The economic downturn is pushing both monetary and fiscal authorities to act. A worrying statistic is the high unemployment rate among young people. The central bank is lowering interest rates and easing the money supply, which could help Bitcoin in the short term. As central banks worldwide tackle economic downturns, Bitcoin's correlation with risk assets becomes more significant. Investors in China are moving back from bonds to stocks, which are more aligned with Bitcoin's price movements. 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 as well, keeping the Yuan stable against the dollar.

Chinese businesses remain a key part of Bitcoin's network. It's estimated that around 20% of the global Bitcoin hash rate is still in China, despite increasing restrictions. Local governments are struggling to raise tax revenue due to falling land values. This makes partnerships with companies that can convert unused power into tax revenue more appealing. This might explain why a surprising amount of the global hash rate securing Bitcoin remains in China.

Many Bitcoin mining companies, like Bitmain, originated in China. Although they face tariffs and restrictions, they still maintain offices in the country. Many mining pools and exchanges, such as Binance, Huobi, and OKX, also started in China. As the economy struggles and state-driven tech advancements wane, the entrepreneurial spirit that helped launch Bitcoin in China might shift back toward it. This could lead to increased buying activity. Chinese entrepreneurs and businesses will have another chance to contribute to Bitcoin's growth. In this case, China's challenges could turn into opportunities for Bitcoin.