Anticipated Reduction in People’s Bank of China’s Reserve Requirement Ratio to Positively Impact Bitcoin

The Reserve Requirement Ratio (RRR) has been cut by 50 basis points by the People’s Bank of China (PBoC) in a surprising move to support risk assets, including cryptocurrencies. This decision comes after the Chinese government proposed a $278 billion package to strengthen the country’s stock markets.
According to QCP Market Update, this move by the PBoC could offer support to risk assets, particularly in the crypto space. The announcement also highlights the potential impact of the US Treasury issuing more short-term debt, which aligns with expectations that could further strengthen risk assets and cryptocurrencies.
The PBoC’s transparent revelation of the RRR cut, which is a rare occurrence in itself, comes at a time of economic concerns and a significant downturn in the stock market.
Governor Pan Gongsheng explained that the move, scheduled for February 5, aims to inject 1 trillion Yuan (equivalent to $139 billion) in long-term liquidity into the market. It is believed that this strategic move will stabilize the economy and counter a $6 trillion stock market decline.
Following the announcement, Chinese equities experienced positive movements, rising by 7-8% from recent lows, which provides necessary support to various risk assets, including the crypto market. The PBoC’s measures also include interest rate reductions on re-lending funds to encourage loans for agriculture and small businesses.
Market analysts are closely monitoring the upcoming FOMC meeting on January 31 and the Quarterly Refunding Announcement by the US Treasury. It is expected that these events will provide insights into the pace of the balance sheet runoff and potential actions that may further impact risk assets and cryptocurrency markets globally.