Economic Fluctuation and Liquidity: The Real Crypto Assets Bull Run Has Not Yet Started

Bitcoin has soared from $16,000 to $110,000 in the past three years, but does this mean that a "real" bull run has begun? While this claim sounds a bit crazy, there is evidence suggesting that due to macroeconomic constraints, the "real" bull run has not yet started.

Although we have witnessed the largest scale of institutional participation in Bitcoin in history, other Crypto Assets have performed mediocre throughout the cycle, with several occurrences of minor bear market conditions during this period.

A deep dive into the reasons behind the Crypto Assets bull runs of 2013, 2017, and 2021 reveals that there are deeper driving factors at play, and these conditions have not appeared simultaneously since then.

If you research what exactly ignited the bull run frenzy, you will find that it is not simply a narrative logic or blind optimism, but rather a macro liquidity mechanism. We may currently be only at the prologue stage.

The Magic of Liquidity: The Capital Inflow Mechanism in the Crypto Assets Market

All bull runs have one thing in common: they coincide with large-scale liquidity injections globally. This surge in liquidity is not coincidental but stems from the macroeconomic regulation driven by central banks and fiscal authorities.

1. Interest rate cut: Borrowing costs decrease, stimulating debt-driven economic growth.
2. Quantitative Easing: The central bank purchases government bonds and injects cash into the circulation system.
3. Forward guidance (no interest rate hike commitment): guiding expectations by indicating future low interest rates.
4. Lowering the reserve requirement ratio: The funds that banks need to retain are reduced, allowing for an increase in available loanable funds.
5. Relax capital requirements: reduce institutional constraints on risk-taking.
6. Loan grace policy: Maintain credit liquidity during defaults or economic downturns.
7. Bank relief or support measures: Prevent systemic collapse and restore market confidence.
8. Large-scale fiscal expenditure: Government funds directly injected into the real economy
9. Release of funds from the U.S. Treasury's general account: releasing cash from the Treasury account into circulation to increase cash supply.
10. Foreign Quantitative Easing Policies and Global Liquidity: Central Bank Overseas Operations Affecting the Crypto Assets Market through Capital Flows
11. Emergency Credit Facility: A temporary loan program established during times of crisis.

These actions not only boost the prices of traditional assets but also trigger speculative frenzy. Crypto Assets, as the highest-risk and most upwardly mobile assets in the financial system, have always been the biggest beneficiaries.

Each liquidity measure can operate at different intensities. When multiple measures are activated simultaneously, their effects will produce a multiplier effect, igniting a fervent rally across the entire market.

Economic Pains: Core Factors Driving Liquidity Measures

The only directive driving these liquidity measures is economic pain. Historical case examples include:

2008 to 2009: Financial Crisis → Comprehensive Quantitative Easing, Zero Interest Rate, Emergency Assistance 2020: COVID Crash → Unprecedented global liquidity, stimulus cash checks issued, record M2 money growth

Currently, although we have witnessed the stock market experiencing a bear market crash in a short period of time, this may not be enough. The market's firepower has not yet fully opened up, and the decision-makers' attitudes remain stubborn, especially against the backdrop of a strong recovery in the market.

More signs indicate: The recent manufacturing employment survey data released by a regional Federal Reserve is -18, which is worse than in 2020 (-12) and 2008 (-14), showing a large-scale unemployment in the industrial sector. This is one of the important data indicators used by the central bank.

Liquidity measures have not yet been fully implemented.

Although the encryption market has seen some recent gains, the real bull run may not have started yet. Most liquidity leverage remains dormant or restricted. While we are moving in the right direction, we may still be some distance from the final stage.

Without new large-scale liquidity injections, the conditions that fueled the past frenzy no longer exist. This is why the recent market rise has been orderly, driven by adoption and led by institutions, rather than a retail-driven, frenzied bull run. There may not be enough idle funds in the financial system to create bubble-like euphoria.

Historical bull run markets and corresponding liquidity conditions:

2013

• The interest rate remains at 0% • Quantitative easing fully implemented • Government spending is at a high level.

Result: Bitcoin rose from less than 15 dollars to over 1000 dollars.

2017

• The pace of interest rate hikes in the U.S. is slow, and rates remain low. • Japan and Europe continue to implement quantitative easing policies. • The market liquidity from 2016 continues into this year.

Result: Bitcoin surged from about $1000 to around $20000, with other Crypto Assets prices skyrocketing in sync.

2021

• All liquidity control measures are fully enabled. • M2 money supply increased by over 25% year-on-year

Result: Bitcoin surged to about $69,000; other asset prices skyrocketed simultaneously.

In every case, the surge in liquidity precedes the bull run.

Key signals: M2 and PMI

Two important indicators that remain consistent with the bull run for a long time:

M2 Money Supply (Year-on-Year Growth Rate)

Track the growth rate of broad money. Historically, there has been rapid growth of money before every major market rally. Currently, M2 growth is basically flat. Although there are local areas that have begun to reach temporary highs (but completely incomparable to historical gains), this signal clearly indicates that the market has not yet gained upward momentum.

ISM Manufacturing PMI

Reliable business cycle indicators. An index above 50 indicates economic expansion; historical data shows that when the Purchasing Managers' Index (PMI) approaches or breaks through 60, Crypto Assets often experience a bull run. However, in this cycle, the PMI index just slightly above 50 has fallen back again.

Data indicates that the macro environment has not yet turned, so we have not yet seen a real frenzy.

Conclusion: The bull run is still brewing.

Each crypto bull run has begun with: when the macro economy is in distress, a large amount of liquidity will be released.

Currently, economic pains are accumulating, but no countermeasures have yet emerged. Most liquidity measures remain in a closed state. Only when economic difficulties force policymakers to take action will the environment needed for a speculative frenzy truly take shape.

Unless a large amount of funds flows in, the Crypto Assets market will remain fundamentally constrained, although it may continue to rise slowly. The real bull run will begin when the liquidity measures are fully implemented, not before.