China's Economic Slowdown Is a Hidden Bullish Factor for Bitcoin

China's economic growth is slowing significantly. This year, it may fail to achieve what was already a low 5% annual growth rate goal.

China's slowing economic growth, which may fall short of the already low 5% annual target this year, has broader implications beyond the realm of economics - including Bitcoin. Here's how China's slowing growth may be a hidden bullish factor as BTC price tests upward momentum after a couple of months of stagnation, a theme I often explore in my book on Bitcoin China.

1- Chinese Investors Seek An Exit From Stagnating Assets In China

Asset bubbles are being created in China, evident in the stark increase in gold prices. With Chinese equities and real estate down, there's a premium for getting money out of the Chinese system and seeing a return elsewhere. Chinese investors have been driving up gold ETFs and government bonds. In 2022, Chinese savers were estimated to sock away over $2.6 trillion in the domestic Chinese banking sector.

However, that behavior may change with interest rates now ticking down and more stimulus being put on the table. A persistently high Chinese savings rate unique among other nations may need a new place to go: with historic interest in Bitcoin, stablecoins, and other cryptocurrencies, Chinese investors looking for an exit ramp may just choose Bitcoin's allure - a path towards getting money out of the Chinese system and being able to transact with financial freedom.

With an exchange ban in the Mainland, over-the-counter trading counters are one way for Chinese people to buy Bitcoin or other cryptocurrencies. Some Chinese crypto buyers use exchanges with different addresses, but many large buyers would prefer to work with OTC desks. Those OTC desks have recently seen record inflows since 2021, showing a rebound from when China imposed restrictions on Bitcoin mining and trading. This recent surge in price-boosting demand seems motivated mainly by the declining return on Chinese assets.

2- China's Central Bank Piles More On Stimulus Fire In Response

Economic downturn in China has put pressure on both monetary and fiscal authorities to turn the economy around. The most alarming statistic is the high unemployment rate for youth. China's central bank is decreasing interest rate targeting and loosening the money supply, which will help in the short term with Bitcoin's correlation with risk assets as central banks race with one another to fight growing downturns in the economy around the world.

Already, Chinese investors are pivoting back from bonds to Chinese equities - a risk asset more correlated with Bitcoin's price. In the United States, the Federal Reserve is also lowering rates and expanding US monetary supply, which will allow the Chinese central bank to also lower rates to keep the Yuan at the same preferred trading range as now and not to worry about a weakening Yuan against the US dollar (in fact, both may just weaken against Bitcoin.)

3- Chinese Businesses Still A Large Part Of Bitcoin's Network

In the case of Bitcoin mining, it's estimated that about 20% of the global hash rate still resides in China despite increasing amounts of restrictions and province-level bans as of 2022. As local governments in China struggle to raise tax revenue because of declining land value, the prospect of working with companies that can leverage stranded power into tax revenue and economic growth becomes much more attractive - and may account for the surprising amount of global hash rate securing the Bitcoin network remaining in China despite the level of restrictions and bans.

Bitmain and Bitcoin mining companies were originally from China. Though tariffs have hit them on the American side and restrictions on the Chinese side, and now they manufacture mostly outside of China, they still maintain many offices in China. Many mining pools offering software that coordinates Bitcoin mining originated from China, and exchanges such as Binance, Huobi, and OKX did, too. As an economic downturn with few state-guided technological windfalls unwinds, the entrepreneurial energy dedicated to starting Bitcoin's momentum in China may now be directed towards Bitcoin again, along with increases in buying activity. Chinese entrepreneurs, businesses, and buyers will once again have the opportunity to contribute their efforts to Bitcoin - as I've written at length about in my book on Bitcoin China. China's loss, in this case, may well be Bitcoin's gain.

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