China’s credit impulse has turned into a potential warning for risk assets, but bitcoin has yet to show much concern.
The shift is significant because the same indicator was viewed as a positive catalyst for BTC in April 2023, when bitcoin traded around $30,000. At the time, CoinDesk pointed to improving credit conditions in China as a tailwind for bitcoin and other risk-sensitive assets. The latest data presents a much less favorable picture.
Economist Michael Biggs created the credit impulse in 2008 to measure changes in new credit flows relative to GDP. The indicator is less about how much debt an economy already carries and more about whether the pace of fresh borrowing is accelerating or slowing compared with the size of the economy.
An increase generally means new lending is entering the economy more rapidly, potentially supporting consumption, investment and growth. A decline indicates that credit creation is losing momentum.
The measure is also watched beyond China. Societe Generale research has found a relationship between the credit impulse and global manufacturing activity, with the indicator historically leading S&P 500 returns by roughly 12 months. A weakening reading can also be a negative signal for commodities because of China’s enormous role in both raw-material consumption and global manufacturing.
Why BTC Investors Should Pay Attention
Bitcoin has long been sensitive to changes in liquidity conditions. Historically, some major bitcoin market bottoms have occurred as China’s credit impulse began to recover.
The current decline therefore deserves attention. Societe Generale strategist Albert Edwards has warned that investors may be underestimating the consequences of China’s monetary tightening. He argued that slower credit creation relative to GDP could be an early indication of a wider global economic slowdown.
Such a slowdown could weaken corporate earnings and put additional pressure on U.S. equities, potentially creating a broader risk-off environment.
Bitcoin has so far refused to follow that script.
The Bloomberg China Credit Impulse index recently registered 20.84 points, according to MacroMicro, marking its lowest level since 2008. Yet BTC gained 25% in August and climbed above $80,000.
The cryptocurrency’s recent advance was supported by strong inflows into U.S. spot bitcoin ETFs, the unwinding of short positions and a wider rebound in assets that had lagged stocks earlier in the year. Momentum has since cooled, with BTC struggling to sustain levels above $80,000 as expectations for a Federal Reserve rate hike have resurfaced.
Can Bitcoin Ignore China?
There are two broad ways the situation could develop.
Bitcoin could continue moving higher despite China’s weakening credit impulse. The cryptocurrency’s investor base has changed considerably from its early years, when retail activity from China and South Korea had a much larger influence on prices.
Today, U.S. institutional investors and ETF flows account for a much greater share of market activity. That could reduce bitcoin’s sensitivity to indicators based on China’s domestic credit conditions.
But there is another, less favorable possibility.
If China’s credit slowdown eventually contributes to a decline in U.S. stocks, the resulting reduction in global risk appetite could spread to bitcoin. In that scenario, BTC’s current resilience may not protect it, regardless of where its buyers are located.
The coming months should reveal whether bitcoin’s increasingly institutional market structure has made it more independent of China’s credit cycle or merely delayed the impact of a broader liquidity slowdown.
