Recently, China has made large monetary policy shifts to address these promising trends. They have lowered interest rates and reserve requirements, which both inject liquidity into global markets and could trigger an altcoin rally. The central bank, the People’s Bank of China, has dropped interest rates to a record low of 1.3%. It has lowered reserve requirements for commercial banks to zero. As a result of these measures, the yuan has already appreciated against the US dollar. Experts like Michael van de Poppe emphasize China's crucial role in this dynamic, suggesting that a weaker dollar, influenced by a stronger yuan, could trigger a positive economic cycle that benefits altcoins.
China's Quantitative Easing Measures
Similarly, the PBOC seems to have finally made the decision to adopt quantitative easing type measures. This groundbreaking decision is now sending shockwaves throughout the global financial landscape. The country’s central bank has cut interest rates to a historic low. Supplementary to this, they’ve cut reserve requirements, which has dumped a whole slew of capital into the market. This massive liquidity injection is intended to re-start economic activity in China. Its consequences extend far beyond the country’s borders.
The most conspicuous effect of these measures was the strengthening of the yuan against the US dollar. That’s a dramatic change in currency valuation. It has a first order effect on strength of the dollar and second order effect on whether or not we export economic cycles. After all, a like depreciation of the dollar typically indicates strong economic fundamentals and prospects. This provides a perfect storm for investing in volatile alternative assets such as altcoins.
China’s recent QE moves were a big catalyst in that rally. This is partly due to the fact that such measures resulted in the yuan’s appreciation against the US dollar.
The Yuan-Dollar Connection
As many of you know, Michael van de Poppe is one of the most popular crypto analysts around today. He explained how the yuan–US dollar dynamics affects altcoins.
"When the yuan appreciates, the US dollar weakens, which means a positive economic cycle and therefore strength in altcoin markets" - Michael van de Poppe
As China’s economy continues to strengthen, and as its currency continues to gain value, the US dollar grows weaker. This paradigm change has ushered in a once-in-a-generation opportunity to invest in alternatives. The cryptocurrency market, especially altcoins, has the most to gain from this dynamic.
Implications for Cryptocurrency
The fiscal dynamic between the U.S. and China has a direct impact on cryptocurrency. As the US dollar strengthens, the yuan weakens. Investors are on the hunt for non-correlated assets that can help supplement and preserve their hard-earned value. Given the higher risk, higher reward nature of altcoins, they become attractive options in such scenarios.
Now, add in China’s quantitative easing which has flooded the market with liquidity. This massive COVID-19 stimulus money can find its way into the crypto world – accelerating the altcoin surge. The combination of new money plus an upbeat economic forecast can quickly ignite the kind of self-fulfilling prophecy. That new investment spurs additional investments and drives even more investment their way.
