China’s Increasing Debt Burden Could Affect the Bitcoin Economy

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According to the Bank for International Settlements’ credit-to-GDP gap, China could be dangerously close to a banking crisis that could threaten the future growth of the entire economy.

Also read: Historic Day for Bitcoin as Bitcoin.com Pool Starts Mining

Is China’s Debt-driven Economy on an Unsustainable Path?

The Bank for International Settlements (BIS), a widely-respected financial watchdog, has reported that China’s “credit-to-GDP gap” has reached 30.1. The credit-to-GDP gap is the difference between the credit-to-GDP ratio — which in turn is the the ratio of a country’s national debt to its GDP — and its long-term trend.

The 30.1 credit-to-GDP mark is considerably higher than all other major countries the BIS tracks.

It is significantly higher than the gap in Asian countries in 1997, during the region’s speculative boom. It’s also higher than the US subprime bubble before the Lehman crisis.

This indicator, from the work of economist Hyman Minsky, is important because it has proved to be the best single gauge of banking risk. It has consistently predicted financial crises — even though the expected result often takes longer than expected to materialize.

History suggests that if a country scores a 10 or higher on this index, then it usually merits closer monitoring of the situation. Also, studies of earlier banking crises around the world over the last 60 years appear to confirm this.

This puts China’s economic situation in perspective, as its score is more than three times higher than the danger threshold.

Additionally, outstanding loans have reached $ 28 trillion, as much as the commercial banking systems of the US and Japan combined.

Bitcoin Mining Operations at Stake?

China is the epicenter of Bitcoin mining, with a large majority of the network’s hashing power originating from the country. Bloomberg reported that China-based miners make up as much as 70 percent of Bitcoin’s total mining power.

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China’s Increasing Debt Burden Could Affect the Bitcoin Economy