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Ever since around 2013/2014, bitcoin’s price has closely followed the rate of change in the growth of global broad money supply (M2) in USD terms.

In other words, from the perspective of macro investors (which are generally different than network users), it is the asset that best serves as a pure-play on changes in global liquidity. It’s a hedge against monetary inflation, not CPI inflation.

Notably, the dollar index relative to other major currencies strongly affects global monetary inflation.

So in order to have a view on price within any intermediate term timeframe (eg the people calling for new ATH prior to the next halving), it’s important to have a view on global monetary inflation and liquidity, because that is primarily where new external demand comes from.

Right now, bitcoin is a coiled spring on the supply side (fast money is out, coins have rotated towards strong illiquid hands), but the demand side (and thus the price) is largely a question of global liquidity.

Jake 2y ago

Does global liquidity just happen to match up well to the 4 year halving cycles? It’s pretty wild that the halving and liquidity coincide like this, and that it’s easy to see a scenario where in the second half of 2024 and into 2025 sees another big spike up in liquidity.

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Discussion

Lyn Alden 2y ago

Liquidity cycles have averaged around 3 years.

After some halvings, bitcoin price shot right up, and in others it was a slower build up. A lot of that is about how closely the liquidity cycles lines up with the halvings.