Two New Factors That Could Propel Bitcoin to $200,000 and Higher

Bitcoin (BTC) currently trades around $82,000. However, under favorable conditions, it could potentially soar to $200,000 or more over time.

Two key factors could significantly contribute to this possible appreciation, both linked to the economic landscape and government actions in China—currently the second-largest economy globally.

Economic Stimulus May Drive Increased Crypto Purchases

The Chinese economy thrives on both its enormous domestic market and its export-driven sectors, which include electronics and machinery. A healthy economy relies on consumers earning and spending money on locally produced goods. If incomes dip or consumers are hesitant to spend, the resulting lack of demand could harm businesses.

Concerned about this scenario, the Chinese government has decided to take action. In a new policy package revealed on March 16, they plan to increase the minimum wage and expand the social safety net, aiming to boost consumer income.

Additionally, China’s central bank is contemplating slashing its primary interest rate to lower borrowing costs for businesses. They may also inject liquidity into the financial system. Other measures—like increasing debt issuance and running larger budget deficits—are being introduced and potentially expanded.

These new economic stimuli might foster increased domestic demand. While there's no guarantee these measures will work, the comprehensive approach taken suggests a higher chance of success. But what does this mean for Bitcoin?

Cryptocurrency mining and trading, including Bitcoin, remain officially banned in China. However, discussions are currently underway among the country’s highest judicial authorities regarding the legal status of cryptocurrencies and digital assets.

If these talks lead to the legalization of Bitcoin—as they might—it could serve as a fresh catalyst for the cryptocurrency. If this legalization coincides with a surge in consumer income and encouragement to invest, the overall positive effect on Bitcoin’s price could be notably heightened. This is an opportunity worth considering.

It's particularly plausible, as earlier this year, the government directed pension funds and mutual funds to invest a more significant portion of their assets in domestic stocks to stabilize prices. If Bitcoin were legalized and the government recognized that wealthier citizens were investing in it, they might encourage businesses to buy Bitcoin, further driving up its value.

Influence of New U.S. Crypto Policy

While the prospects of these events are still uncertain, there's another major possibility that could render the initial scenario more likely and also provide strong support for Bitcoin.

China may be contemplating the formation of a national Bitcoin reserve, similar to the United States' plan for a Strategic Bitcoin Reserve. This idea is more feasible than it may seem; over 21% of the world's Bitcoin mining capacity is illicitly based in China.

If China establishes a Bitcoin repository, it could bolster one of its domestic industries while also supporting the value of the assets it retains. Under these conditions, it would be plausible for companies to be advised to hold onto Bitcoin, thus creating upward pressure on prices for both the miners and the newly affluent citizens.

A combination of these driving factors could push Bitcoin’s price to $200,000 or beyond.

So, what should investors do? Gradual accumulation and holding of Bitcoin could be wise. If the scenarios discussed come to fruition, this strategy stands to benefit significantly. However, it's essential to note that there's no certainty regarding the Chinese government's direction on legalization or the implementation of a Bitcoin reserve. Still, Bitcoin is a worthwhile asset to consider, regardless of these potential developments.

Note: The author has positions in Bitcoin.

Bitcoin, China, Economy