Here’s Why the Chinese Stock Market’s Rally Might Boost Bitcoin

The Chinese stock market has found itself caught within the throes of a fresh bull market, and it could create a tailwind that lifts Bitcoin.

After facing the dire implications of the ongoing pandemic that originated within China’s borders, the country’s investors appear to be moving on, now helping to fuel a fresh bull market.

The country’s benchmark stock indices all saw massive growth during their latest trading session, with the Shanghai Composite even seeing its best single-day percentage gain since 2015.

A few simple factors are driving this fresh uptrend, and one group believes that they could bode well for Bitcoin.

It is important to note that unlike the U.S. financial markets, retail traders are the dominant force within the Chinese equities market. Some data sets even suggest that they account for 99% of the stock market’s investor base.

As these traders flood into the market, their growing appetite for risk may translate into gains for Bitcoin.

China’s Stock Market Enters Bull Territory

After a long period of weakness, the Chinese equities market is rebounding with a bang.

On Monday, the Shanghai Composite rallied nearly 6%, while the Hang Seng was able to climb by 4%.

These gains come as the global markets in general start flashing signs of strength.

The new uptrend was catalyzed by a push from the country’s regulatory agencies for the development of margin trading and short selling capabilities in the country, which is anticipated to boost stock market activity.

It also appears to be driven by hype.

Because retail investors make up for 99% of the Chinese market’s investor base – according to a government survey from May – their excitement regarding technical and fundamental developments can morph into mania.

The power of a retail investor mania was seen in 2017 when Bitcoin and the aggregated crypto market saw meteoric gains.

A similar trend has also been seen recently in the US stock market, with an army of traders on Robinhood pushing some individual stock prices up hundreds of percent.

The media can also help fuel this hype, and CNN has reported that multiple state-owned media channels within the country are already pushing the narrative that the markets are entering firm bull territory.

How a Chinese Bull Market Could Boost Bitcoin 

One active crypto fund recently explained that China’s FTSE A50 Index hit fresh all-time highs off of this latest rally.

Image Courtesy of the Amber Group. Chart via TradingView.

This, they note, indicates that risk sentiment for Chinese investors is growing, potentially boding well for Bitcoin and the aggregated crypto market.

“FTSE China A50 Index at new ATHs, surpassing 2015 mania levels. As a proxy for risk sentiment in China, this could bode well for crypto.”

Naturally, there are barriers in China preventing retail investors from entering the crypto markets freely, but the use of VPNs and other means allow these roadblocks to be easily subverted.

Featured image from Shutterstock.

Charts from TradingView.



Author: Cole Petersen

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