Rising Global Liquidity May No Longer Boost Bitcoin｜Matrixport Research

One of the most frequently cited indicators for forecasting Bitcoin’s price is global liquidity — measured by the aggregate money supply from 28 central banks, standardized in U.S. dollars. Historically, rising global liquidity has often been accompanied by price increases in Bitcoin. The logic follows that as the global economy expands, liquidity is expected to continue growing, providing a supportive backdrop for Bitcoin and other risk assets.

When the Federal Reserve increases M2, the new money reaches financial institutions through asset purchases, such as government bonds. These funds then flow into the broader economy through lending or investment, eventually ending up in bank deposits, money market accounts, or savings — forms that collectively constitute M2. Only later might this liquidity reach crypto markets.

While a lag between money supply growth and Bitcoin’s price action may exist, there is no strong theoretical basis for why this should consistently be 13 weeks — the timeframe that currently offers the best visual correlation. Many Bitcoin traders closely monitor global liquidity charts, expecting a surge in liquidity to translate directly into higher prices. However, this assumption may be on shaky ground, as it lacks rigorous mathematical justification — as we’ll outline below.

Overlaying Bitcoin’s price with global liquidity may appear visually compelling, but it’s not methodologically sound. This is because both time series are non-stationary — they trend over time — which can distort correlation analysis and lead to spurious results. Since the scale of Bitcoin (a $90,000 asset) and global liquidity (a $108 trillion aggregate) differs dramatically, comparing them in absolute terms is misleading.

This doesn’t mean macro factors are irrelevant — instead, it highlights the importance of tracking the right risk indicators and using sound mathematical methods to assess their impact and predictive value.

Over the past seven years, the correlation between Bitcoin and the NASDAQ has only occasionally spiked — and while it’s currently trending higher, the launch of Bitcoin ETFs has yet to push this relationship meaningfully above historical norms. Even with increased institutional access, the correlation remains well below the 60% level seen during the COVID period. This is a key insight for diversified portfolio managers, reinforcing the view that Bitcoin still trades on its terms rather than acting as another proxy for U.S. tech stocks.

Without a clear catalyst — like the U.S. presidential election in November 2024, which fueled the second leg of last year’s rally — Bitcoin’s broader consolidation is likely to persist. It’s worth noting that, despite Bitcoin’s 121% return in 2024, most of that upside was driven by Bitcoin ETF inflows and anticipation surrounding Ethereum’s upgrade and U.S. election outcomes. Outside of these catalysts, Bitcoin mostly traded sideways. That’s why identifying crypto-native drivers — or macro factors with direct policy implications, such as pro-crypto political leadership — may prove more valuable than relying solely on broad liquidity metrics.

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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