China's credit impulse, a gauge of borrowing growth relative to the size of the economy, has dropped to its lowest reading since 2008. The indicator has historically tracked risk assets and led S&P 500 returns by 12 months, but bitcoin has stayed resilient through the decline so far.
The Bloomberg China Credit Impulse index recently stood at 20.84 points, its lowest reading since 2008, according to data source MacroMicro. Yet bitcoin surged 25% in August and topped $80,000 during the same stretch.
A gauge with a history of moving markets
Credit impulse was invented by economist Michael Biggs in 2008 and measures the change in the flow of new credit relative to GDP, rather than the total stock of debt outstanding. A rising reading means fresh credit is flowing in faster than before, which tends to boost spending and growth.
The index is said to correlate with global manufacturing cycles and lead S&P 500 returns by 12 months, according to research by Societe Generale. Societe Generale strategist Albert Edwards warned that ignoring China's recent monetary tightening could prove costly, saying a decline in credit creation relative to GDP could signal an impending global slowdown that weighs on corporate earnings and U.S. stock prices.
Bitcoin's rally has held up so far
Bitcoin, described as a liquidity sponge, is not uncorrelated to the indicator either. Historically, major bottoms in bitcoin have coincided with renewed upswings in the credit impulse. The August rally, however, was characterized by strong inflows into U.S.-listed spot ETFs and an unwinding of short positions, alongside a broader uptrend in assets that had lagged stocks earlier in the year. More recently, the ascent has stalled just under $80,000, with renewed fears of a Fed rate hike weighing on sentiment.
Two scenarios from here
In one scenario, bitcoin keeps climbing and shrugs off the weakening China credit impulse. Crypto trading today is driven largely by U.S. institutional flows rather than the Chinese and South Korean retail volumes that once set the tone in the asset's early years, which could make bitcoin less sensitive to signals rooted in China's domestic credit conditions.
The second scenario is less comfortable: if Wall Street stocks roll over, as Edwards' reading of the credit impulse suggests, the resulting risk aversion may spill over into bitcoin regardless of where its buyers are based.
Source: CoinDesk
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