Could decline in Chinese stocks redirect capital back to Bitcoin, crypto trading?

• Crypto investors have reportedly shifted focus to the recent Chinese stock rally
• As the equity uptrend falters, will investors revert to crypto trading? 

Chinese stocks’ rally has tapered after a disappointing stimulus package, raising hopes of a potential shift to Bitcoin [BTC] and crypto trading. 

Since late September, Asian stocks have rallied amid solid Chinese government stimulus packages and expectations that the policies could continue in 2024. 

According to Alex Kruger, an economist and market analyst, markets expected the Chinese government to announce an extra $1.4 trillion fiscal package. However, only a $14 billion package was announced. 

This dampened market optimism, triggering most Chinese stocks to retrace recent gains. How does that affect BTC and crypto trading? 

China’s influence on crypto trading

According to a recent Bloomberg report, the Chinese stock rally might have tipped some crypto investors to reallocate capital to these booming equities. The report cited Tether’s USDT discount relative to the U.S dollar (USD) since late September as a crucial indicator.

One expert noted that this coincided with China’s quantitative easing program and might signal “panic buying” of Chinese stocks. 

“If the traders are rushing to exchange back into fiat currency, it can be inferred that they are panic buying Chinese stocks.”

Ergo, investors might have sold their USDT to buy Chinese stocks. Now that the Chinese equity market rally has temporarily stifled, will they shift focus to BTC and crypto trading again? 

According to Singapore-based crypto trading firm QCP Capital, the waning Chinese stock rally could boost BTC. The firm stated, 

“As the Chinese rally wanes, we anticipate capital reallocation back into crypto, reflecting the industry’s growing maturity as an alternative risk-on asset.”

However, it added that the upcoming earning season and September US CPI data scheduled for 10 October could be downside risks. They could complicate the crypto market’s outlook. 

Source: CryptoQuant

Meanwhile, the BTC Korean Premium Index formed a V-reversal pattern at press time. It was above the neutral level after dropping in the first week of October. 

The metric, also known as Kimchi Premium, tracks BTC price differences between South Korean and foreign exchanges. A higher premium would suggest a stronger demand for BTC in Korea than overseas.

The aforementioned positive reading suggested little Korean demand for the asset. At the time of writing, BTC was valued at $62.5k, down about 1% on the weekly charts.