Bitcoin: Potential Beneficiary of China's Economic "Chemotherapy"

China is facing the largest real estate bubble burst in its history. To tackle this challenge, Beijing is preparing to implement large-scale monetary and fiscal stimulus measures, which are referred to as economic "chemotherapy". This approach could significantly drive up the price of Bitcoin.

The Formation and Burst of China's Real Estate Bubble

The prosperity of the Chinese real estate market stems from several factors:

1. Government-led rapid urbanization process
2. Local governments rely on land transfer income
3. Banks tend to provide loans to real estate developers.
4. The general public views real estate as the best investment choice.

However, this bubble eventually became too large and unsustainable. In 2020, the Chinese government introduced the "three red lines" policy, which limits the leverage of real estate developers. This policy triggered a collapse of market confidence, and many developers fell into financial distress.

The Necessity of Economic Stimulus Measures

The collapse of the real estate market has dealt a severe blow to the Chinese economy:

• Banks are facing a large number of bad loans.
• Local governments have lost their main source of revenue.
• The wealth of ordinary families is eroded.
• The difficulty for young people to find employment has increased.

To avoid an economic hard landing, the Chinese government needs to take strong stimulus measures.

Upcoming "Chemotherapy"

There are signs that China is preparing to implement large-scale monetary and fiscal stimulus:

1. The People's Bank of China has begun purchasing government bonds in preparation for quantitative easing.
2. The government announced that it will inject capital into the banking system.
3. Relax accountability for grassroots officials and encourage credit expansion
4. Limit the salaries of bank executives in preparation for the upcoming credit boom.

These measures will lead to a significant increase in the money supply, potentially triggering asset price inflation.

Bitcoin: Potential Beneficiaries

Despite China's ban on public Bitcoin trading, the peer-to-peer trading market remains active. With the increase in money supply and rising asset prices, some Chinese investors may turn to Bitcoin to protect asset value.

History shows that Bitcoin performs better than other assets during periods of central bank balance sheet expansion. Although in the short term, investors may first choose to buy undervalued stocks and real estate, as stimulus measures advance, Bitcoin may become a more popular choice.

If Chinese investors flood into the Bitcoin market on a large scale, its price could experience a sharp increase, similar to the situation in 2015 when Bitcoin's price rose nearly 5 times in a short period after the depreciation of the Renminbi.

Overall, the economic stimulus measures that China is about to implement may create significant upward space for Bitcoin prices, although this process may take some time to manifest.