Waning China stock rally could drive investment back into crypto, QCP Capital claims

Stocks tied to Chinese markets fell sharply on Tuesday after Beijing decided to hold off on new stimulus measures aimed at supporting the economy.

QCP Capital analysts view this downturn as a potential opportunity for capital reallocation into the cryptocurrency market. "As the Chinese rally wanes, we anticipate capital reallocation back into crypto, reflecting the industry’s growing maturity as an alternative risk-on asset," they said.

During the Asian trading session, Chinese companies that traded on the Stock Exchange of Hong Kong, including Alibaba Group and JD.com, experienced significant declines of approximately 8% and 12%, respectively. The MSCI AC Asia Pacific equity index recorded its largest drop in a month, while Hong Kong equities faced their steepest single-day loss since 2008. Additionally, the CBOE Volatility Index surged by 15% to 22 points, reflecting increased market uncertainty.

However, despite the increased VIX, analysts noted that expectations in the crypto derivatives market for future bitcoin price swings are currently lower than recent actual volatility, suggesting that traders are not anticipating significant price movements in the near term. "In the derivatives market, crypto volatility remained stable, with front-end implied volatility trading at 43%, a 3-vol discount to the seven-day historical realized volatility," they said.

China’s monetary easing and its global market impact

Today's market decline comes after almost two weeks of China-related stock gains after Beijing announced a series of economic stimulus measures designed to lower borrowing costs and stimulate economic activity in late September. These measures included cutting interest rates on existing mortgages by 0.5 percentage points and reducing reserve requirements for banks to encourage lending.

The People’s Bank of China Governor, Pan Gongsheng, emphasized that these efforts aim to stimulate domestic demand and financial markets, boosting investor confidence. However, growth in the world’s second-largest economy continues to slow, marked by a property market slump and falling prices.

In the past 24 hours, gold increased by 0.2% to $2,648.7 per ounce, while bitcoin traded flat, currently changing hands for around $62,400, according to The Block's bitcoin price data.