Bitcoin Benefits From The Return Of Monetary Creation

The Fed’s monetary easing and the Chinese public deficit bode well for bitcoin, which remains poised below $100,000.

The Fed Remains Dovish

The American central bank has remained on standby for the second consecutive time. The benchmark interest rate remains between 4.25% and 4.50%, and only two decreases of 0.25% are anticipated for 2025, with notable impacts on the economy and cryptos.

The cause is revised upward inflation expectations. Governors now see inflation remaining at 2.7% in 2025. The target of 2% remains distant, post-2027.

The surprise was the decision to slow down the reduction of its balance sheet by reselling debt securities purchased through the famous quantitative easing (9 trillion dollars).

For reference, the Fed began reducing its balance sheet at a rate of 100 billion dollars per month following the explosion of inflation in 2022. Since then, its balance sheet has been reduced by about 1.3 trillion in Treasury bonds and 900 billion in mortgage-backed securities, representing a decrease of 25%.

However, the Fed has slowed its pace since last June, reducing from 100 billion per month to only 60 billion. It is now 40 billion, with only 5 billion in Treasury bonds.

In other words, the White House has likely pressured to lower government borrowing rates. In summary, the Fed remains on a path of monetary easing desired by Donald Trump. This bodes well for bitcoin.

Will There Soon Be a QE in China?

The Chinese central bank has also remained on standby by keeping its benchmark rate at 1.5%, unchanged for the fifth consecutive month.

According to economists from Barclays, the persistent weakness of inflation in China, the sluggishness of domestic demand, and U.S. tariffs should prompt the People’s Bank of China (PBoC) to continue its monetary easing.

Wang Qing, an economist at Golden Credit Rating International, believes that the policy of the new U.S. government may impact Chinese exports and jeopardize the growth targets of the CCP.

Mr. Wang predicts that the PBoC will lower its rate in the second quarter. According to him, the total rate cut in 2025 will exceed the 0.30% decrease of 2024. This means that the margin for maneuver is tight and it will certainly be necessary for the government to increase its spending to achieve the 5% GDP growth target.

The Prime Minister, Li Qiang, even aims for 7% growth if inflation rises to 2%. To achieve this, it is expected to allow the public deficit to increase from 3% to 4% of GDP. This equates to increasing expenditures by 1.3 trillion yuan (180 billion dollars) in 2025.

Not sufficient according to Yu Yongding. The former member of the PBoC board from 2004 to 2006 advocates launching a QE to revive the currently stagnant inflation around 0%.

In any case, it is certain that the growth of the Chinese money supply will remain very high.

Bitcoin and Money Supply

With China flirting with deflation and America gently easing its monetary policy, the global money supply will continue its rebound.

The money supply M2 of the United States is up by +4% year-on-year, continuously increasing for 11 months. China’s M2 is up by 7%.

Globally, the total money supply M2 is currently growing at a rate of 7% per year. It amounts to the equivalent of more than 108 trillion dollars.

However, traditionally, the growth of the money supply fuels the rise in prices of desirable assets like stocks, commodities, and bitcoin.

Not to mention that the United States is preparing to accumulate a million bitcoins and that China could follow suit. This is what the Hong Kong firm HashKey Capital, responsible for a Bitcoin ETF, thinks:

For now, markets seem to be waiting to see the impact of the all-out tariffs. In the meantime, bitcoin remains strong, and many are betting on $200,000 for 2025.

Don’t miss our complementary article: Bitcoin Driven by Money Supply.