Liquidity and Macroeconomic Indicators Impact Bitcoin（2）

The future trajectory of BTC is influenced by various macroeconomic factors, especially the Treasury debt issuance policy, the strength of the dollar, and changes in the money supply. Investors are advised to closely monitor fiscal policies, dollar fluctuations, and adjustments in the money supply to better navigate potential market shifts.

U.S. Treasury Secretary Change: Debt Issuance Strategy May Shift, Affecting Market Liquidity and Sentiment

During the tenure of former Treasury Secretary Janet Yellen, the U.S. Treasury adjusted its debt issuance strategy by reducing long-term bond issuance in favor of short-term Treasury bills (T-bills). This strategy helped maintain stability in treasury yields, diminished the appeal of fixed-income assets, and drove investors toward higher-risk assets, such as BTC and stocks. With the increase in market liquidity, investor risk appetite grew, further fueling BTC’s bullish momentum.

However, with the appointment of Scott Bessent as the new Treasury Secretary on January 28, this strategy may change. If the Treasury resumes issuing more long-term bonds, it could push up yields, tighten liquidity, and weaken demand for risk assets. In a tightening financial environment, BTC’s recent upward momentum may face pressure. Investors need to closely monitor any changes in the Treasury’s debt issuance policy, as this will directly impact market liquidity and sentiment.

Geopolitical Risks Support the Dollar, Tightening Global Liquidity and Restricting BTC and Other Risk Assets’ Liquidity

The U.S. Dollar Index (DXY) is one of the key macroeconomic factors influencing BTC price fluctuations. The DXY measures the strength of the dollar relative to a basket of foreign currencies. A stronger dollar usually signals tightening global liquidity, which in turn diminishes the attractiveness of BTC and other risk assets.

On February 19, U.S. President Trump took a hard stance on Ukraine via his social media platform, heightening market concerns over geopolitical risks. On February 20, the DXY dropped by 0.57%, causing BTC’s price to rebound to $98,415.09, with a daily increase of 1.83%. While geopolitical factors have recently supported the dollar, the market generally expects European countries to adopt a pragmatic approach to a potential ceasefire agreement between Russia and Ukraine, which could impact the DXY’s trajectory.

Expansion of Money Supply May Drive Increased Demand for BTC

Recent data from Jin10 shows that M2, the global money supply, grew by 7% year-on-year at the end of January 2025, a move that helped increase market liquidity. At the same time, U.S. January CPI data exceeded market expectations. Following the CPI release, market expectations of a possible rate cut by the Federal Reserve in June rose to 60%.

(M2) global money supply, which measures the total amount of currency circulating in the economy, including cash, deposits, and other liquid assets, directly affects liquidity. When M2 expands, financial system liquidity increases, driving up investment capital. This excess liquidity typically leads to an increase in investor risk appetite, boosting demand for BTC and other risk assets.

However, if M2 continues to grow too quickly, inflationary pressures may build, prompting the Federal Reserve to tighten monetary policy, which would be detrimental to BTC and other risk assets. As a result, investors should closely monitor changes in the money supply, along with key economic data like CPI, to assess BTC’s potential price movements and market liquidity trends.

Disclaimer: The above content is for informational purposes and reference only. The content does not constitute investment advice. Digital asset transactions can be precarious and volatile. Investment decisions should be made after carefully considering individual circumstances and consulting financial professionals. Matrixport is not responsible for any investment decisions based on the information provided in this content.

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