{"id":50717,"date":"2023-08-20T06:10:05","date_gmt":"2023-08-20T10:10:05","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/crypto\/chinas-deflationary-woes-and-the-ripple-effect-on-bitcoin\/"},"modified":"2023-08-20T06:10:07","modified_gmt":"2023-08-20T10:10:07","slug":"chinas-deflationary-woes-and-the-ripple-effect-on-bitcoin","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=50717","title":{"rendered":"China’s Deflationary Woes and the Ripple Effect on Bitcoin"},"content":{"rendered":"
\n

China<\/strong>‘s economy slipping into deflation for the first time in more than two years might have negative near-term impacts on\u00a0Bitcoin (BTC).\u00a0<\/p>\n

In the\u00a0latest episode of Macro Markets, analyst\u00a0Marcel Pechman<\/strong>\u00a0argued that deflation in China, which economists believe is an issue, would leave short to mid-term adverse impacts on Bitcoin, commodities, as well as stocks that rely on global economic growth.\u00a0<\/p>\n

“It will certainly not be fun to hold stocks that happen to depend on global economic growth or simply use too much financial leverage,” Pechman said.\u00a0<\/p>\n

\n

“And probably not a good time to hold commodities. So expect a short to mid-term negative impact on Bitcoin if China’s growth dissipates.”<\/p>\n<\/blockquote>\n

Last month, China experienced deflationary conditions for the first time in two years, indicating a potentially concerning new phase in its struggling economy.\u00a0<\/p>\n

According to the official consumer price index, Chinese consumer prices dropped by 0.3% in July compared to the previous year.\u00a0<\/p>\n

By excluding volatile food and energy prices, core inflation actually rose to 0.8% in July, the highest level since January, up from 0.4% in June.\u00a0<\/p>\n

The data release paints a gloomy picture for China, as the economic recovery loses steam due to various issues, including declining exports, record-high youth unemployment, and a stagnant housing market.<\/p>\n

China is also facing falling prices across different sectors, including commodities like steel and coal, as well as essential consumer goods like vegetables and appliances.\u00a0<\/p>\n

This is in contrast with the global trend, where many countries are grappling with rising inflation after easing Covid-19 restrictions.\u00a0<\/p>\n

The concern lies in the potential entrenchment of the expectation of falling prices, which could dampen demand, exacerbate debt burdens, and trap the economy in a cycle that is difficult to escape using traditional stimulus measures employed by Chinese policymakers.\u00a0<\/p>\n

Deflation poses a particular risk for countries with high levels of debt, such as China, as it increases the cost of servicing that debt and may discourage borrowing, spending, and investment.<\/p>\n

\u201cThe reality looks increasingly grim,\u201d Eswar Prasad, a Cornell University economist who once headed the International Monetary Fund\u2019s China division,\u00a0told The Wall Street Journal.\u00a0<\/p>\n

\n

\u201cThe government\u2019s approach of downplaying the risks of deflation and stalling growth could backfire and make it even harder to pull the economy out of its downward spiral.\u201d<\/p>\n<\/blockquote>\n

Impacts of the Fed’s Balance Sheet<\/h2>\n

Pechman also discussed the effects of the United States\u00a0Federal Reserve<\/strong>‘s balance sheet and how it increased its assets by $5 trillion between December 2019 and April 2022.<\/p>\n

He pointed out that this expansion period coincided with a 38% decline in the\u00a0S&P 500 index<\/strong>.\u00a0<\/p>\n

Additionally, the Federal Reserve’s balance sheet surpassed $8.9 trillion just as the stock market index reached its highest point of 4,800.\u00a0<\/p>\n

According to Pechman, the issue lies in the significant deficit of the US Treasury Department, as the government spends more than it receives from revenues and taxes.\u00a0<\/p>\n

Consequently, the government needs to roll over some of the debt instead of letting it expire.\u00a0<\/p>\n

This means that the Federal Reserve may no longer be able to continue reducing its balance sheet, which has played a significant role in lowering inflation.\u00a0<\/p>\n

Ultimately, Pechman argued that once the Federal Reserve is compelled to expand its balance sheet again, inflation will be significantly impacted.\u00a0<\/p>\n

He advised individuals who possess valuable assets such as Apple shares, land, gold, and Bitcoin to hold on tight and not be swayed by the temporary period of reduced inflation.<\/p>\n

\u00a0<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

China‘s economy slipping into deflation for the first time in more than two years might have negative near-term impacts on\u00a0Bitcoin (BTC).\u00a0 In the\u00a0latest episode of Macro Markets, analyst\u00a0Marcel Pechman\u00a0argued that deflation in China, which economists believe is an issue, would leave short to mid-term adverse impacts on Bitcoin, commodities, as well as stocks that rely […]<\/p>\n","protected":false},"author":1,"featured_media":44105,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[243],"tags":[83],"class_list":["post-50717","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-crypto","tag-featured"],"yoast_head":"\nChina's Deflationary Woes and the Ripple Effect on Bitcoin | iFintechWorld<\/title>\n<meta name=\"description\" content=\"China's economy slipping into deflation for the first time in more than two years might have negative 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