Evaluating the correlation between Bitcoin and macroeconomic data is an important step in identifying long-term trends. Recent analysis suggests that monitoring central bank balance sheets can provide deeper insights rather than focusing solely on global M2 money supply.
However, the image in the macro is more complicated than the chart suggests. The following analysis highlights intertwined factors from an expert’s perspective.
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What does the correlation between global central bank liquidity and Bitcoin price show?
A recent study by Alphractal claims that central bank liquidity is flowing into the economy. This is faster than the global M2 supply, where workplaces, money, and encryption.
So, comparing central bank liquidity data with Bitcoin prices gives us an idea of how the correlation works.
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Data shows that global central bank liquidity will fluctuate between $28 trillion and $31 trillion between 2023 and 2025, moving through four expansion and contraction cycles. With each increase in liquidity, Bitcoin rose after about two months.
“The liquidity of the global central bank tends to rise before BTC. Usually, when liquidity is in the final stage, BTC enters a period of sideways movement. That is, the central bank injects money first, and some of that liquidity later moves to risky assets like BTC.
This observation helps explain the $100,000 to $120,000 Bitcoin fluctuations in the third quarter, as liquidity is below $30 trillion.
Zooming out the charts since 2020, analyst Quinten noted that Bitcoin’s four-year cycle is closely aligned with the four-year liquidity cycle.
These findings reinforce the key role of central bank liquidity injections in shaping the performance of assets, including Bitcoin. They also suggest that new liquidity cycles may emerge over the next four years.
US debt growth exceeds liquidity signals
Jamie Coutts, Chief Crypto Analyst at RealVision, has added another layer to the discussion. Financial stress can emerge if debt continues to rise faster than liquidity and make the market more vulnerable.
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He described global liquidity as a constant refinance machine where debt expands faster than economic growth. Liquidity needs to maintain pace to avoid collapse.
In the US, debt growth outweighs liquidity already shows a systemic risk. His chart shows the ratio of liquidity to US debt has fallen to a low level.
“If the ratio is high, excessive liquidity supplies inflation; if it is low, funding pressures will emerge and risky assets will become vulnerable.
Billionaire Ray Dario also sees the vulnerability. He warned that US public debt could reach dangerous levels and could cause an “economic heart attack” within three years. He predicted that cryptocurrencies with limited supply could become an attractive alternative if the US dollar depreciates.
While Alphractal’s observations focus primarily on repetitive historical patterns, Jamie Coutts and Ray Dalio highlight current differences. Despite these contrasting views, Bitcoin remains in a unique position. Experts still argue that the effects of these forces could be positive for BTC.
