As the global economy gradually recovers, liquidity indicators have generally rebounded. Global liquidity (especially the total money supply of 28 central banks) is closely related to the price increase of BTC, but this relationship may be gradually becoming invalid.
The relationship between global liquidity and BTC price is gradually weakening
In the past, when major central banks such as the Federal Reserve increased the money supply, these additional funds flowed into the financial system through the purchase of assets such as government bonds, and eventually flowed into the broader economy, and some entered the cryptocurrency market, pushing up the price of BTC. In theory, increased liquidity means that there is an ample supply of funds, which can support the prices of risky assets, especially BTC. However, the current market performance shows that the increase in global liquidity has not directly driven the price of BTC to continue to rise as expected.
The lag effect of liquidity indicators raises questions
While the lag between money supply growth and BTC prices was once considered a reliable predictor, this “13-week” lag period has no strong theoretical support. BTC traders often predict price trends by observing global liquidity charts, assuming that a surge in liquidity will directly lead to price increases. However, there are some problems with this assumption. Both BTC and global liquidity time series have trend changes (non-stationary), which may lead to errors in correlation analysis and mislead investors.
Further analysis found that the comparison between BTC price and global liquidity (such as M2) is misleading. After all, the scale of BTC and global liquidity is so different that a direct comparison between the two is not only without mathematical basis, but may also mislead market expectations.
BTC’s relationship with tech stocks has not strengthened as expected
Over the past seven years, BTC’s correlation with US stocks (such as the Nasdaq) has occasionally spiked but has never reached a stable high level. Even with the launch of a BTC ETF (Exchange Traded Fund), this correlation is still far below the 60% level reached during COVID. BTC still trades more on its own terms in the market rather than as a proxy for other risk assets (such as US tech stocks). Therefore, the effectiveness of over-reliance on global liquidity and other macro indicators to predict BTC movements is weakening.
Lack of clear catalysts, need to find crypto-native drivers
The future trend of BTC still depends on clear market catalysts. In the absence of external impetus, the BTC market may continue to consolidate, and rising global liquidity is no longer the decisive factor driving price increases. Investors interested in the crypto market should pay more attention to crypto-native drivers, such as changes in crypto policies, technological innovations within the industry, or political leadership supporting cryptocurrencies, which may have a greater impact on BTCs price trend than simply relying on global liquidity indicators.
Disclaimer: The market is risky and investment should be cautious. This article does not constitute investment advice. Digital asset trading can be extremely risky and unstable. Investment decisions should be made after carefully considering personal circumstances and consulting financial professionals. Matrixport is not responsible for any investment decisions based on the information provided in this content.
