The cryptocurrency market may be on the verge of a significant shift, and the catalyst could come from an expected source: China. As the nation’s economy shows signs of strain, traders are closely watching the People’s Bank of China (PBOC) for a potential stimulus package that could inject massive liquidity into global markets, with cryptocurrencies standing to be a primary beneficiary.
Why Economic Stimulus Matters for Crypto
Central bank stimulus is a powerful tool used to foster economic growth. By reducing interest rates or creating special financing conditions, central banks effectively increase the money supply. This flood of new liquidity often seeks higher returns, flowing into risk assets like stocks and, increasingly, cryptocurrencies.
The connection isn’t just theoretical. A March 2025 report from 21Shares highlighted a staggering 94% correlation between the price of Bitcoin (BTC) and global liquidity—a connection even stronger than that of the S&P 500 or gold.
With China accounting for 19.5% of the world’s gross domestic product, its monetary policy decisions carry immense weight. According to Porkopolis Economics, China’s M0 monetary base stands at 5.4 trillion) and the US ($5.8 trillion). While the US Federal Reserve often dominates headlines, a significant move by the PBOC could have a seismic impact on global liquidity.
China’s Economic Stumble Sets the Stage
Recent data from China paints a concerning picture, making a case for imminent intervention. On Thursday, the country reported a 0.1% decline in retail sales for July compared to the previous month. Furthermore, Goldman Sachs estimates revealed that fixed asset investments fell 5.3% year-over-year in July—the sharpest contraction since March 2020. Industrial production also saw a meager 0.4% rise, while the urban unemployment rate climbed from 5.0% in June to 5.2% in July.
This economic slowdown has led many experts to believe that stimulus is not a matter of if, but when. Bloomberg Economics analysts Chang Shu and Eric Zhu suggested that the PBOC could introduce stimulus measures “as soon as September.” Economists at Nomura and Commerzbank have echoed this sentiment, arguing that stronger support policies are inevitable.
US Markets Signal a Growing Appetite for Risk
While China’s situation develops, market signals from the United States are providing another bullish tailwind for crypto. Despite deteriorating consumer sentiment, investor behavior suggests a declining aversion to risk.
The University of Michigan’s latest consumer survey, released on Friday, showed that 60% of Americans expect unemployment to worsen over the next year—a level of pessimism not seen since the 2008-09 financial crisis. Yet, markets have remained surprisingly resilient. The S&P 500 closed at a new all-time high, and yields on 5-year US Treasury bonds have been climbing.
Typically, when fears of a recession rise, demand for safe-haven assets like US government bonds increases, pushing their yields down. After hitting a three-month low of 3.74% on August 4, the 5-year Treasury yield rebounded to 3.83% on Friday. This upward move indicates that traders are becoming less risk-averse, creating a favorable environment for a potential recovery in the altcoin market.
The Perfect Storm for a Crypto Breakout?
The stage appears to be set for a significant market move. On one hand, China’s faltering economy makes a large-scale liquidity injection from its central bank increasingly likely. On the other, rising US Treasury yields suggest that investors are already willing to take on more risk.
If the PBOC follows through with a strong stimulus package, the resulting wave of liquidity could be the catalyst that triggers a broad rotation into risk assets. For a market already showing signs of renewed confidence, this push from China might be precisely what’s needed to propel cryptocurrencies beyond their previous all-time highs. However, investors should remain cautious, as intensifying fears of a global recession could still temper the market’s enthusiasm.
