Bitcoin is not immune to global liquidity conditions. Historically, major Bitcoin market bottoms have coincided with renewed increases in the credit impulse, an indicator of credit creation and economic momentum.
According to Société Générale, the indicator is now declining, and overlooking the trend could prove costly for risk assets.
“Ignoring China’s recent monetary tightening could prove to be the biggest investment mistake of the decade,” Societe Generale strategist Albert Edwards said in a note discussing the decline in credit impulse.
Edwards said that slower credit creation relative to China’s gross domestic product could signal an approaching global slowdown. Such a slowdown could pressure corporate earnings and weigh on U.S. stock prices.
Why Bitcoin Has Remained Resilient
The raw reading for the Bloomberg China Credit Impulse Index recently stood at 20.84 points, its lowest level since 2008, according to data from MacroMicro. Despite the weakness in the indicator, Bitcoin surged 25% in August and climbed above $80,000.
The rally was supported by strong inflows into U.S.-listed spot Bitcoin exchange-traded funds, the unwinding of short positions and a broader recovery in assets that had lagged stocks earlier in the year.
Bitcoin’s advance has more recently stalled just below $80,000, as renewed concerns about a Federal Reserve rate hike have weighed on market sentiment.
Two Possible Scenarios for Bitcoin
Two scenarios appear plausible from here. In the first, Bitcoin continues to rise despite the weakening China credit impulse. That would not be entirely surprising given the market’s changing composition.
Crypto trading is now driven largely by U.S. institutional flows rather than the Chinese and South Korean retail volumes that helped set the tone during Bitcoin’s early years. This shift could make Bitcoin less sensitive to signals linked to China’s domestic credit conditions.
