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Bitcoin has dropped 26% from this cycle’s all-time high, pushing market sentiment into “extreme fear.” However, global liquidity trends provide a broader perspective, offering reassurance amid market volatility.
Indeed, in today’s economic environment, the money supply plays a big role in shaping asset prices. This is especially true for bitcoin, which maintains a 0.94 correlation with global liquidity over the long term. Analyzing global liquidity alongside industry-specific events and bitcoin’s on-chain valuation metrics gives investors a valuable insight they shouldn't overlook.
Bitcoin and Global Liquidity
Global liquidity refers to the overall availability of money and credit across the international financial system. It affects capital flows, investment, and asset prices, with central banks playing a crucial role through interest rates and monetary policy. The Federal Reserve, European Central Bank (ECB), People’s Bank of China (PBoC), and Bank of Japan (BoJ) are key institutions shaping global liquidity conditions.
A common measure of global liquidity is Global M2. It includes cash, checking and savings deposits, money market accounts, and smaller time deposits under $100,000, all denominated in U.S. dollars. It serves as a useful proxy for global liquidity, showing the total money readily available for spending, investing, and lending on a global scale.
Bitcoin’s price closely follows global liquidity trends. The logic is straightforward: when there is more money available, asset prices tend to rise. Risk assets, including bitcoin, are particularly sensitive to liquidity conditions, thriving in environments where investors adopt a risk-on strategy.
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