The U.S. Federal Reserve continues to maintain its anti-liquidity position, but China does not seem to be hesitant about expanding credit, which is a positive sign that China will continue to invest in risk assets such as cryptocurrencies.

According to data source MacroMicro China’s credit impulse index (which measures changes in new credit or bank loans as a percentage to the gross domestic product) has bounced back from 24% and 26% this year. This indicates a renewed credit expansion relative the growth rate.

According to a paper published November by the Federal Reserve, a continued rise in China’s credit impulse could help to the global financial system and support global risk perception, increasing global asset prices, and expanding global credit. Bitcoin is a high-risk asset and tends to move in line with stocks.

There has been a strong correlation in the past between China’s credit impulse, Asian equity markets, Credit Suisse.

Additionally, bitcoin has seen major bullish-to-bullish trends change in the past instances of credit expansion in China. A continued rise in credit impulse index could bode well to bitcoin.

Data released Tuesday showed that China’s bank lending has risen 27% to 10.6 trillion Yuan ($1.54 trillion), a record, compared to the first quarter 2022.

“This tidal waves of liquidity will continue propel risk assets and cryptocurrency,” David Brickell (director of institutional sales at Paradigm’s crypto liquidity network Paradigm), stated in a newsletter this month. He also noted China’s recent liquidity injections.

Bitcoin gained more than 70% this year due to a renewed uptick of China’s credit impulse. This is a repeat of a historical pattern. The U.S. recession is shown in the shaded area. (MacroMicro/CoinDesk) (MacroMicro/CoinDesk)

China’s credit impulse soared following the March 2020 coronavirus-induced crash. In the 12 months that followed, Bitcoin saw a sixfold increase to $60,000

Bitcoin rallied more than 70% this year after a year-long bearish market. This was in response to a renewed credit impulse. Similar bull rallies were witnessed in cryptocurrency after the credit impulse peaked in May 2015 and December 2018.

Analysts expect further credit expansion in China over the next few months.

“China’s credit cycle is at its bottom. It appears to be continuing to recover as shadow banking credit and equity financing — two components of aggregate finance that account for over one-third of the total–are increasing,” Chi Lo (senior market strategist APAC at BNP paribas Asset Management) stated in a March 29 note.

Edited and spelled out by Parikshit Moishra.