China recently changed its stance on cryptocurrency and crypto exchanges, which may be a huge contributing factor to the crypto market decline and significant price plunges for Bitcoin and altcoins alike. As the effects of the US-China trade war and tariffs remain, the People’s Bank of China issued an official statement essentially finding it necessary to reject cryptocurrency and make it a crime to trade or hold crypto assets. China has found it necessary to make sure they are in control over their economic choices and Bitcoin, altcoin and cryptocurrency exchange users have been targeted in a bid to save their failing economy.
Cash-strapped businesses are offloading assets fast and reducing debt to buffer profit declines and safeguard themselves from the trade war. Companies are feeling increased pressure by rising borrowing costs, with the Federal Reserve, as an example, expected to raise interest rates again at its next meeting on December 18-19.
Investors are avoiding companies related to retail, rural telecoms, hospitals and auto parts because of growing uncertainty over their business models in the next five to ten years. Bank of America Merrill Lynch analysts said negative sentiment among institutional investors had not peaked, leaving room for a further decline. The analysts cited a warning sign from the U.S. index measuring the effect of buy-backs on stock prices.
Meanwhile, Chinese stock markets have been buoyed by the ongoing US-China trade war. Beijing was citing progress, ahead of President Donald Trump’s highly anticipated meeting with Chinese President Xi Jinping in Argentina. However, Washington has made it clear that an initial trade deal is possible but they will not ignore the civil unrest in Hong Kong.
This has all help spin a sell-off in financial exchanges amid rising hostilities with the United States and intensified concerns about whether China’s stock market is heading towards a meltdown. After U.S. indexes suffered heavy losses, both the Dow Jones and the NASDAQ lost more than 5% over two days, the rout spread to China. Economists and analysts have questioned whether China’s economy can withstand the impact of additional tariffs, or even an economic cold war with the United States. Is the stock market its first victim? Is Beijing stirring the conflict beyond repair?
He Qiang, a professor at the Central University of Finance and Economics and a member of the Chinese People’s Political Consultative Conference, an advisory body, said at the forum that rampant speculation and extreme volatility in the Chinese stock market were caused by deficiencies in supervision and long-term planning. Private enterprises were already suffering amid the trade war because of skyrocketing borrowing costs in spite of China’s central bank pushing for more lending to small to medium-sized firms, he said.
Both China and the U.S. levied 25% tariffs on $50 billion worth of each other’s imports in July and August. Last month, the U.S. added another 10% tariff on $200 billion worth of Chinese imports, with rates set to rise to 25% on January 1 if China does not make concessions. China retaliated with tariffs on $60 billion worth of U.S. goods. Clearly the back and forth competition and bid to save face is causing a lot of tension between these two economic powers.
The People’s Bank of China said on Sunday that it would cut the amount of cash that banks must hold as reserves to lower funding costs and spur growth. This is the fourth time this year that the central bank has cut the reserve requirement ratio.
The only reason why PBoC has cut RRR is slow growth and the trade war. Companies are increasingly facing more difficulties with financing, especially small to medium firms. While these measures may give a short-lived boost to the market, it is doubtful whether such measures will help private companies when it comes to meeting their borrowing needs because banks might not lend to those that are struggling to repay debts.
China’s shortsightedness towards growth may be a key factor that is triggering the market meltdown. In the coming weeks, investors are expecting Beijing to initiate talks with Washington and arrive at an acceptable deal.
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