Is Bit still the "barometer" of global Liquidity?

The current trend of BTC is closely related to the global financial market. How to better use this data to judge the market trend? This article is from the article written by Sam Callahan and Lyn Alden, compiled and translated by Plain Blockchain. (Background: Trump threatens to impose a 25% tariff on the EU, BTC spikes to $82,200! Panic and greed index drops to 10, hitting a two-and-a-half-year low) (Background: BTC Spot ETF 'net outflow of 938 million RMB' hits a record high! Experts: severely affected by the overall economy, fear of further price drops) The Liquidity of the encryption market is in urgent need. After a long period of Sideways oscillation, BTC once again plummeted, reaching a low of $86,000, with a pullback of nearly 20% from the high point. As the leader of Cryptocurrency, the decline of BTC has caused a collapse of various altcoins, and market sentiment has also shifted from the greed of MeMe to panic at one point. Is the Cryptocurrency bull market still on? Will BTC break through upwards? Surely this is a topic of concern for many people. However, the current trend of BTC is closely related to the global financial market. The article by Sam Callahan, a research analyst at Swan Bitcoin, on the relationship between BTC price and global Liquidity is worth a read. The following is the main text: BTC is in line with global Liquidity trends for 83% of any 12-month period, a higher percentage than any other major asset class, making it a powerful indicator of Liquidity conditions. Although BTC has a high correlation with global Liquidity, it is not entirely unaffected by short-term deviations, especially during periods of extreme valuation, and is influenced by specific events or internal market dynamics. By combining the global Liquidity conditions and BTC on-chain valuation indicators, investors can more finely understand the cyclical changes of BTC, helping them to identify moments when internal market dynamics may temporarily deviate BTC from the Liquidity trend. Understanding how asset prices fluctuate with changes in global Liquidity has become a key factor for investors to increase returns and effectively manage risks. In today's market, asset prices are increasingly directly influenced by Central Bank policies, and Liquidity conditions have become the primary driver of asset prices, with fundamental factors no longer playing a decisive role. This has become particularly evident since the global financial crisis (2007-2008). Since then, more and more unconventional monetary policies have become the driving force behind asset prices. Central Banks leverage Liquidity control, turning the market into a big game, as economist Mohamed El-Erian put it, Central Banks have become the 'sole protagonist.' Stanley Druckenmiller also agrees with this, pointing out that 'returns cannot drive the overall market; it's the Federal Reserve... following the Central Bank, following the Liquidity changes... Most people in the market are looking for returns and traditional indicators, but it's actually Liquidity that drives the market.' This is particularly evident when studying the close relationship between the S&P 500 index and global Liquidity. The interpretation of the above chart can be summarized as a simple supply and demand relationship. If more funds are available to purchase assets, whether stocks, bonds, gold, or BTC, the prices of these assets usually rise. Since 2008, Central Banks have injected a large amount of legal tender into the system, driving up asset prices. In other words, currency inflation has driven asset price inflation. In this context, understanding how to measure global Liquidity and the response of different assets to changes in Liquidity has become a key factor for investors to deal with Liquidity-driven markets. There are many ways to measure global Liquidity, but in this analysis, we will use global M2, a broad Money Supply indicator, which covers physical currency, demand deposits, savings deposits, money market securities, and other forms of easily accessible cash. Bitcoin Magazine Pro provides a method for measuring global M2, which aggregates data from the eight major economies: the United States, China, the Eurozone, the United Kingdom, Japan, Canada, Russia, and Australia. This indicator well represents global Liquidity, as it reflects the total amount of funds available for spending, investment, and borrowing on a global scale. In other words, it can be seen as a measure of the total amount of credit creation and Central Bank currency printing on a global scale. It is important to note that global M2 is denominated in US dollars. Lyn Alden explained the importance of this in an article: as the global reserve currency, the US dollar is the primary unit of account for global trade, contracts, and debt, making the strength of the US dollar critically important. When the US dollar strengthens, the debt burden of various countries increases; when the US dollar weakens, the debt burden decreases. Denominated in US dollars, global broad Money Supply is a key indicator of global Liquidity conditions. How quickly is legal tender being created? How is the strength of the US dollar in the global currency market? When global M2 is denominated in US dollars, it not only reflects the relative strength of the US dollar, but also embodies the speed of credit creation, making it a reliable indicator for evaluating global Liquidity conditions. Although there are other ways to measure global Liquidity, such as considering short-term government debt or the global forex swap market, when we mention 'global Liquidity' in the following article, it will be considered as 'global M2'. Why BTC may be the purest barometer of Liquidity For many years, one of the assets that has shown a strong correlation with global Liquidity is BTC. As global Liquidity expands, BTC tends to perform strongly; and when Liquidity contracts, BTC often performs poorly. This dynamic has led some to refer to BTC as a 'Liquidity barometer.' The following figure clearly shows how the price of BTC has remained consistent with changes in global Liquidity. Similarly, comparing the year-on-year changes in BTC with global Liquidity further highlights the close relationship between the two. When Liquidity increases, BTC prices rise; when Liquidity decreases, BTC prices fall. From the above chart, it can be seen that the price of BTC is very sensitive to changes in global Liquidity. But is it really the most sensitive asset to Liquidity in today's market? Overall, the correlation between risk assets and Liquidity conditions is more significant. In an environment of abundant Liquidity, investors often tend to adopt higher risk/high return investment strategies, shifting funds towards assets considered to be higher risk; conversely, when Liquidity tightens, investors tend to turn to assets they consider safer. This can explain why assets like stocks usually perform well when Liquidity increases. However, the performance of stocks is also influenced by factors unrelated to Liquidity. For example, the performance of stocks is partly driven by earnings and dividends, so their prices are often related to economic performance. This may weaken the pure correlation between stocks and global Liquidity. In addition, US stocks are affected by passive fund inflows from retirement accounts (such as 401(k)), which may buffer their sensitivity to global Liquidity conditions, regardless of Liquidity Fluctuation. The relationship between gold and Liquidity is even more complex. On the one hand, gold benefits from increasing Liquidity and a weakening US dollar; on the other hand, it is also seen as a safe-haven asset. When Liquidity contracts and the market turns to safe-haven behavior, investors seek safety and may increase demand for gold. Therefore, even if Liquidity is draining from the system, the price of gold may still perform well. This means that the performance of gold is not necessarily closely related to Liquidity conditions. Similarly...