🔶 Bitcoin and Dragon | #48

꧁China’s economy and its potential impact on crypto ✤Deals 𓋇Developments to watch

Feb 11, 2024

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I am Coco, and today welcomes the Year of the Dragon. In ancient China, the dragon held a revered status, symbolizing ultimate power and prosperity. May the Dragon bring you abundant blessings and good fortune in the year ahead.

As festivities and celebrations unfold in China, there's a palpable sense of apprehension in the air. Should the U.S. be concerned about the challenges China is currently facing and what ramifications might they have on the U.S. and global economy, financial markets, and the crypto market?

Jerome Powell said in a most recent interview with 60 Minutes, “As long as what happens in China doesn’t lead to significant disruptions in the economy or the financial system,” then the implications for the United States — we may feel them a bit, but they shouldn’t be that large.”

I interpret Powell's comment as a signal that the Fed is growing increasingly concerned about China and is closely monitoring the situation.

From the perspective of the crypto industry, China is becoming increasingly relevant in two aspects. First, the Fed's rate cut decisions may have to take into account China's evolving economic dynamics. Second, we might observe a greater influx of capital from China into crypto and USD-pegged stablecoins. Here's why:

Real estate, a cornerstone of China's economic growth and accounting for approximately 30% of its GDP, is experiencing a downturn with far-reaching consequences. Industries spanning manufacturing, finance, investment, transportation, and more are feeling its effects nationwide. Additionally, local governments are grappling with a significant loss in revenue from land sales to developers. The unemployment rate is rising.

The faltering stock market, compounded by an economic cooldown and capital outflows driven by higher yields elsewhere, continues to undermine consumer confidence. This comes at a time when confidence has barely recovered from the impact of the Covid lockdowns. Wall Street

The silver linings of China’s slowdown and deflationary pressure could offer some relief to, at least not worsen, the U.S. inflationary situation, particularly through reduced demand for commodities from China. China’s major trade partners may start to feel the ripple effects stemming from China’s decreasing demand for their products. The Federal Reserve will have to carefully consider the magnitude of these unfolding changes in China and globally when making its rate-cut decision at the next meeting.

The underperforming stock markets in Mainland China and Hong Kong, coupled with the troubled real estate market, are compelling Chinese investors to seek opportunities elsewhere. One such alternative is the crypto market, with which the Chinese are familiar. Tether has been a significant medium for Chinese investors to swap out of fiat RMB. The market cap of Tether will continue to grow in 2024. See more data in BlockchainAsia#43

Graphic from Nic Carter of Castle Island Ventures

In anticipation of a potential surge in capital outflows seeking better investment opportunities, representatives from industry associations in Hong Kong have submitted a proposal, suggesting to implement a mechanism similar to the Shanghai-Hong Kong Stock Connect, which would enable Mainland investors to access Hong Kong's crypto exchanges, rather than witnessing the capital flowing to other markets. Beijing may reluctantly grant Hong Kong greater autonomy to develop vehicles and channels aimed at attracting Mainland Chinese investors.

🎯🎯🎯

Some researchers predict that Bitcoin's price will follow historical trends and rise during the Chinese Lunar New Year in 2024. Today marks the first day of the lunar New Year. Let’s see how Bitcoin’s price will be by Day 6.

💥 Deals

Asian investors show increasing interest in projects related to Bitcoin ecosystem.

B Squared Network, a Bitcoin Layer 2 solution, raised seed round. Blockchain News
West3Port accelerator launched Web3Port Foundation, an investment platform. Cointelegraph
DexTools, a DeFi analytics player, raised seed round from OKX Ventures. Medium
bitSmiley, a Bitcoin stablecoin protocol, raised a token round. The Block
KEKKAI, a Japanese Web3 security company, raised $1.5M seed round. Medium
Mon Protocol, an IP governance protocol, closed a strategic investment round from angel investors like Yat Siu and VCs. Twitter

⭐ Developments to Watch

Solana Foundation and Abu Dhabi Global Market (ADGM) inked partnership agreement. ADGM website
VSFG in Hong Kong eyes ETH spot ETF. The Block
UBS Hong Kong launched tokenized warrant on Ethereum UBS website On-chain Media
Hong Kong will soon initiate a consultation paper publicly on a proposed framework for virtual asset OTC venues. CoinDesk
Hong Kong-headquartered HashKey Exchange is exploring to enter stablecoin business. HashKey Group
Japanese Yen (JPY) denominated stablecoin is now on-chain. Blockworks
Japanese regulator is seeking more easing and clearer regulations for DAOs. Cryptonews

🎺 Survey

➩ Recommended Reads

Thailand’s Blockchain Landscape by HashKey Capital
Request for Startups 2024 by Hashed
2024 Forecast by OKX Ventures

Thank you for reading, until next time.

Coco

I am Coco Kee, author of BlockchainAsia, host of BlockchainAsia Podcast, and Co-founder of Kee Global Advisors.

Email me if you want me to include your company’s stories or interview you for the Podcast. Follow me on Linkedin and Twitter.

The curated content in BlockchainAsia newsletters is for informational and educational purposes, represents personal views only, and does not constitute investment recommendations.