Bitcoin Price and Global Liquidity: A Correlation

An Overview

Vivek Sun, in a recent article, has explored the significant rise in global liquidity during 2024, which has been primarily driven by extensive money printing and debt expansion. This increase in liquidity has had a profound impact on the price of Bitcoin, a currency that is often seen as a counter to government's expansionist monetary policies. The price of Bitcoin, as a result, often mirrors global liquidity trends.

Bitcoin and Global Liquidity: A Detailed Analysis

A recent report by Lyn Alden and Sam Callahan has further analyzed the correlation between Bitcoin's price and global liquidity. The report suggests that the more the monetary expansion, the more people are driven towards Bitcoin, thus increasing its price. Their comprehensive analysis has found that over 12-month periods, the price of Bitcoin moves in the same direction as global liquidity about 83% of the time. This correlation is higher than any other major asset class, making Bitcoin a unique indicator of global liquidity trends.

Quantifying the Correlation

The report has also quantified the correlation between Bitcoin and the global M2 money supply. Between May 2013 and July 2024, there was a strong overall correlation of 0.94. The average 12-month rolling correlation was 0.51, while stocks and gold also showed moderately high correlations, ranging between 0.4 and 0.7.

Not a Perfect Correlation

However, the correlation between Bitcoin and global liquidity is not perfect. Short-term breakdowns can occur due to specific events in the crypto world, such as exchange hacks or the collapse of Ponzi schemes. Temporary decoupling can also occur when Bitcoin reaches extreme overvaluation levels during market cycle peaks. Despite these short-term breakdowns, the long-term relationship between Bitcoin and global liquidity persists.

Current Scenario and Future Predictions

Currently, liquidity is reaching unprecedented levels, which suggests that Bitcoin could soon experience a massive bull run if this relationship holds. While no model can perfectly capture the complexity of Bitcoin, recognizing its role as a monetary indicator can provide valuable insights. If history is any indication, Bitcoin's current trends suggest that a liquidity-driven boom may soon be on the horizon.

Bottom Line

While the correlation between Bitcoin and global liquidity is not perfect, the long-term relationship between the two is undeniable. This relationship provides a unique insight into global economic trends and the potential future of Bitcoin. What are your thoughts on this correlation? Do you believe that Bitcoin's price is a reliable indicator of global liquidity? Feel free to share this article with your friends and discuss it further. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.