China Awash with Liquidity: What This Means for Cryptocurrency Markets?

The Chinese central bank, People's Bank of China, has injected more than $130 billion into the economy in the form of renminbi, possibly playing a precarious game with rather low foreign reserves, reported CNBC.

One of the greatest concerns of the Chinese governments is capital flight, or funds leaving the country. There have been reports of channels for buying real estate abroad in attempts to lock the newly acquired wealth into more stable investments.

And lately, cryptocurrencies have come on stage, as analmost anonymousand borderless method to secure and move capital. While Chinese exchanges have been closed, other mechanisms allow for acquiring cryptocurrencies. Thus, the new liquidity injection may, at least in part, find its way into the cryptocurrency market, which is small in proportion to the Chinese economy, but is growing every day.

At the same time, the Chinese central bank tries to curb the dangerous expansion of debt, while aiming to create a positive market sentiment by additional liquidity.

The extra liquidity was provided by repurchase deals, in which the central bank bought up securities from commercial banks, with an agreement to sell them again in the future.

Meanwhile, the volumes onLocal Bitcoinsfor the Chinese market remain near an all-time high, although the service is still a niche market. It is possible that some of the trading volumes from Chinese exchanges have moved to Japan or Korea, and there may be other mechanisms for exchanging Bitcoin.

The leading exchanges,OKExand Huobi, have moved away from mainland China. But for now, the easy inflow of yuan directly into cryptocurrencies has been removed from the markets.

In the past month, the central bank of India has taken up a similar move. Both India and China are a part of a group of economies that saw unprecedented economic growth in the past decades, but the local economy is still perceived as unstable. As a result, India and China have been robust adopters of cryptocurrencies, with a special interest in the potential of Bitcoin as a safe haven in economic turbulence.