PBOC Interest Rate Cut Supports Bitcoin - Essay Example

The People’s Bank of China announced it decided to cut the one-year lending rate by 25 basis points to 4.6 percent and lower the required reserve ratio by 50 basis points for all banks.

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The move, which follows the biggest devaluation of the yuan in two decades earlier this month, comes amid signs of decelerating growth for the world’s second-biggest economy.

So far, the rate cut failed to boost the equity markets, but at least reduced the bearish trend. As per the commodity market, the PBOC decision has not been sufficient to reverse the bearish trend.

However, force is to note that the PBOC decision has positively affected bitcoin trading prices.

Bitcoin prices have been strongly bouncing back from $ 212 to $230 on the major exchanges, almost 8%.

Indeed, Goldman Sachs reported last year that about 80% of the bitcoin transactions are from Yuan trades.

Moreover, China is the home to the biggest BTC exchanges with OKCoin, Huobi and BTC China, in global scale and as the prices of the bitcoin effects the nation, in the same way, the interest rate cut and devaluation of Yuan will also affect the bitcoin industry.

Whereas, Chinese equities have lost half their value since mid-June, bitcoin has been doing much better.

Regarding equity markets, Ronald Wan, chief executive at Partners Capital International in Hong Kong declared to Bloomberg that “The prevailing sentiment is still that investors want to cash out, whatever the government does”.

“Confidence is already damaged. Doubts over the effectiveness of policies are getting bigger. The market will remain under selling pressure for a while.”

Chia Woon Khien, Singapore-based portfolio manager at Nikko Asset Management Asia Ltd., said in an interview with Bloomberg’s office, “If we’re lucky, China’s economy will start to recover from the fourth quarter.”

Trading Recommendation

We renew our advice to remain neutral while the situation is uncertain.

It makes sense to wait and see how bitcoin prices evolve between $220 and $250.

Even though, the BTC prices have rebounded averaging into a neutral position appears prudent.

BitcoinVOX analysts recommendation: Neutral-Bearish.