Sophia’s Thoughts on Economic Liquidity
China and Japan are implementing new policies, and the ongoing FTX payouts are making waves. What does this mean for crypto and broader financial landscapes?
These are Sophia's Thoughts:
China’s new economic policies, including rate cuts and lending incentives, aim to revitalize its struggling economy and could lead to broader policy changes regarding cryptocurrency.
Japan’s Financial Services Agency is reviewing crypto regulations, potentially leading to lower taxes and the approval of ETFs, marking a shift towards more mainstream adoption of digital assets.
The USD 16 billion payout to FTX creditors marks a significant step in resolving the exchange’s collapse, and the markets are speculating as to where the paid out funds will be invested.
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🚀 Last week’s market performance
The market cooled off of its run this week, staying neutral. Bitcoin (BTC) also moved sideways, rising 0.1%. The best performing coin this week was Raydium (RAY) which rallied 22.1% upon surging volumes on the Solana blockchain. The worst performing coin this week was Celestia (TIA) which lost 16.5%.
🧐 What is your crypto mood today?
In each Sophia's Thoughts newsletter, we ask about your crypto mood. Your response to this question helps Sophia get a better sense of the pulse of crypto markets. And this ultimately translates into better insights for you when combined with Sophia's AI models. Your data empowers Sophia to provide you with even better intelligence going forward!
🏦 China’s Revised Policies
China is taking steps to stimulate its economy with a series of monetary measures totaling between 1 trillion to 2 trillion yuan (USD 142 to 284 billion). The People's Bank of China (PBOC) has introduced policies such as reducing reserve requirements for banks, lowering key short-term interest rates, and offering relief for homebuyers. These revisions are all aimed at increasing lending and injecting liquidity into the markets.
While these measures help free up liquidity within China, there are also ripple effects globally. European luxury stocks, global commodity prices, and Chinese indexes have already experienced boosts following these announcements. ANZ’s Raymond Yeung contextualizes the current package as modest compared to the USD 2 trillion stimulus from 2009 stating “today’s package is far from being a bazooka.”
In addition to these monetary moves, China is also reevaluating its stance on cryptocurrencies. During the 2024 Tsinghua Wudaokou Chief Economists Forum, China’s former finance minister Lou Jiwei emphasized the need to closely examine advancements in cryptocurrency and the potential benefits digital currencies pose to financial stability. He pointed to the U.S. Securities and Exchange Commission’s approval of spot Bitcoin ETFs, saying, “We also need to study the latest international changes and policy adjustments because they are crucial for the development of the digital economy.” He highlighted concerns over crypto's volatility but acknowledged the U.S. shift towards embracing crypto could signal the need for China to reconsider its approach.
Despite China’s crypto ban, it still controls over 55% of Bitcoin’s hashrate. As the country reevaluates its stance on cryptocurrency, this could lead to further policy shifts that have a positive impact on the crypto market.
🔑 Japan’s Regulatory Moves
Japan’s Financial Services Agency (FSA) has also announced a review of the country’s cryptocurrency regulations, with changes that could lower taxes on digital assets and allow for the introduction of crypto exchange-traded funds (ETFs). This move is in response to growing demand for more investor-friendly crypto policies, as the current taxation rate on crypto gains reaches as high as 55%.
The review will assess whether Japan’s current regulation under the Payments Act provides adequate investor protection or whether digital assets should be reclassified as financial instruments under the Financial Instruments and Exchange Act. If the latter occurs, it would align crypto taxation with other financial assets, reducing the tax rate on crypto profits to 20%. Market analysts like Yuya Hasegawa from Bitbank believe that such a shift could also naturally lead to the approval of ETFs containing digital tokens, further integrating crypto into Japan’s traditional financial markets.
Japan’s regulatory stance has evolved significantly since the 2014 Mt. Gox scandal and the 2023 DMM Bitcoin breach. The current administration under Prime Minister Shigeru Ishiba appears bullish on the development of blockchain and Web3 technologies, which could accelerate the adoption of these regulatory changes. In his policy document, Ishiba stated, “Using blockchain technology, NFTs, and more, we will look to maximize the value of a multitude of analog local products, such as food and tourism experiences,” further emphasizing the country’s interest in utilizing blockchain as part of its economic strategy.
Trading volumes on Japan’s centralized exchanges have surged in 2024, reaching nearly USD 10 billion per month compared to USD 6.2 billion in 2023. This sharp rise in trading activity reflects growing investor interest, as Japan continues to review its crypto regulations.
💸 FTX Creditors to See Payouts
The long-awaited resolution to the FTX collapse is finally taking shape, with the exchange preparing to distribute $16 billion to its creditors starting in Q4 2024.This significant payout follows two years of legal battles since the exchange’s dramatic downfall, led by now-convicted founder Sam Bankman-Fried. Despite ongoing frustrations from creditors over the terms of repayment, this move is expected to inject liquidity into the crypto markets.
The repayments are based on the cryptocurrency prices at the time of FTX’s bankruptcy filing in late 2022, when Bitcoin was trading around USD 16,000 – significantly lower than today’s value of approximately USD 65,000. Many creditors feel short changed and some have expressed dissatisfaction on social media. "0% of FTX creditors agree that receiving $16,800 for your Bitcoin is fully compensated. I understand why the bankruptcy process needs to work this way, but let’s not pretend victims are getting their money back or that FTX wasn’t as awful as it was," said BitGo CEO Mike Belshe, reflecting the widespread frustration.
Despite these challenges, analysts believe the distribution of USD 16 billion could provide a major boost to the crypto market. Crypto analyst Xremlin noted that investors will likely reinvest their payouts which could reignite demand in the market, marking a turning point for the broader sector as it continues to recover from the FTX fallout. While the payouts offer some financial relief, the collapse of FTX has left lasting scars, and creditors will only receive a portion of their original holdings – between 10% and 25%. Nonetheless, the reintroduction of this capital into the market may help bolster liquidity as 2024 comes to a close.
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