Bitcoin Price Drops as China Scales Back Stimulus Efforts

• Bitcoin experienced a 21% surge in September, primarily fueled by stimulus packages from China.
• Traders are less enthusiastic as the Chinese government’s stimulus initiatives fell short of their hopes.
• Bitcoin struggled to maintain its position above $64,000 while the market looks for a breakthrough, even with the optimism of ‘Uptober’.

The latest Bitcoin upswing, which commenced in early September and was largely influenced by stimulus measures from China, appears to be losing momentum. The leading cryptocurrency by market capitalization momentarily surpassed $66,000 on September 27th, but did not manage to hold that level. By October 2nd, it dropped to $60,000 and is now trading at $62,700.

Impact of Chinese Stimulus

Although September is typically a challenging month for cryptocurrencies, Bitcoin exhibited a strong performance last month, driven primarily by a stimulus program initiated by the People’s Bank of China (PBOC) in response to a slowdown in economic growth and reductions in Federal Reserve interest rates.

The PBOC reduced rates on medium-term lending and the 7-day repo to stimulate economic activity, a strategy known to enhance the appeal of risky assets. Additionally, mortgage rates and minimum down payment requirements were lowered across the board to support China’s real estate market.

There were hopes that the government would continue its stimulus strategies via a substantial multi-trillion-yuan spending package; however, the government announced it would pre-fund 100 billion Yuan from its 2025 budget, with an extra 100 billion allocated for the construction sector, which greatly disappoints expectations.

Potential Upward Drivers for the Crypto Market

As attention turns toward Chinese stimulus, the crypto market is eagerly awaiting a catalyst to ignite a new rally. The Federal Reserve’s 50bps interest rate cut in September is anticipated to spur market growth, yet October has been lackluster as Bitcoin struggles to break through the $64,000 threshold, and institutional investments in US Bitcoin (and Ethereum) spot ETFs are dwindling.

After the government’s announcement regarding stimulus measures, Bitcoin saw a decline of about 1% but managed to rebound slightly during the London trading session.