More China stimulus may fuel bullish sentiment in crypto and risk assets: QCP Capital

QCP Capital analysts are forecasting that additional stimulus measures from China will create a more bullish environment for risk assets, including cryptocurrencies.

"We believe more easing is coming from the People's Bank of China (PBoC), and they have communicated as much, and combined with the U.S. Federal Reserve joining the global cutting cycle, all major central banks, except Bank of Japan, are now ready to inject more liquidity into the market. The macro space continues to look more and more bullish for risk assets, including crypto," QCP Capital analysts said.

The analysts believe that due to various positive factors driving the market, a potential upcoming surge in cryptocurrency prices could catch many investors off guard. "We know how explosive crypto prices can be, and with so many bullish catalysts, we think the next move higher will leave many people surprised and sidelined," they added.

On Tuesday, China’s central bank rolled out a comprehensive set of policies designed to rejuvenate the struggling housing and equity markets. These measures appear to be effective, with the SSE Composite Index rising by 1.16%, an increase of 33.18 points to close at 2,896.31.

European equities rallied for a second day, with sectors linked to the Chinese economy seeing notable gains as China's stimulus fuelled widespread risk-on sentiment. In London, the FTSE 100 closed up 0.35%, while the STOXX Europe 600 rose 0.11%. On Tuesday, the S&P 500 closed up 0.25%, the Dow Jones increased by 0.20%, and the Nasdaq rose by 0.56%.

Despite this positive performance in the U.S. stock markets, the global cryptocurrency market cap fell to $2.34 trillion, reflecting a 0.9% decline over the past 24 hours.

BRN analyst Valentin Fournier noted that the influx of liquidity from China's stimulus measures is likely to drive gains in lower market cap digital assets as the bull run progresses, emphasizing that "identifying the right projects to invest in now will be crucial for capitalizing on the upcoming altcoin season."

"Currently, bitcoin is stabilizing below $64,000, and there are numerous short positions in the market that could be squeezed, contributing to upward momentum," he continued. "While some indicators suggest a sustained rally as we approach the end of the year, investors should remain cautious, as overbought conditions could trigger a potential dip."

The QCP Capital analysts also pointed out that the difference in yields between the 2-year and 10-year U.S. Treasury notes signals the potential for increased sentiment towards risk assets. "We have seen the yield spread between the 2-year and 10-year U.S. Treasury notes continue to widen over the past month, moving 40bps higher and now trading at 21bps. A widening spread generally suggests optimism about economic growth, which is supportive of risk assets in the medium to long term," they said.