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Now that the global liquidity proxy - a measure of cross-border financial flows that have a particularly strong influence on risky assets - is again approaching the elevated levels last seen at the apex of the pandemic-induced mayhem, bullish bets on Bitcoin are also increasing in tandem. As an illustration of this evolving phenomenon, look no further than the spot Bitcoin ETFs, whose year-to-date inflows have just hit another record level.
As we noted in a recent post, Bitcoin is directionally sensitive to measures of global liquidity. And, in what bodes well for the prospects of the world's premier cryptocurrency, the global liquidity proxy officially turned positive at the end of July 2024, and is now rapidly approaching levels last seen during the peak of the pandemic-driven liquidity bonanza.
In fact, just over the past few days, the US Federal Reserve has slashed its benchmark interest rate by 0.5 percent, and the People's Bank of China (PBOC) has lobbed a veritable monetary bazooka by slashing the banks' Required Reserve Ratio (RRR), the 7-day reverse repo rate, and the rates on existing mortgages. These concerted policy measures from various corners of the globe are now working in tandem to boost the global liquidity proxy.
I commissioned a research report, written by @samcallah, to quantify bitcoin's correlation to measures of global money creation relative to other asset classes.
Result: bitcoin moves in the directional of global M2 83% of the time; more than other assets.https://t.co/ODKNqvzdis pic.twitter.com/8710g6NKqr
— Lyn Alden (@LynAldenContact) September 24, 2024
And, to gauge just how important this liquidity metric is to Bitcoin's price gains, consider the findings of a new study which posits that Bitcoin moves in the direction of the global M2 supply a whopping 83 percent of the time! What's more, no other major asset displays such an elevated sensitivity to measures of global liquidity.
While Bitcoin's price does not always move in tandem with measures of global liquidity, especially at extreme valuations, the study notes that the world's premier cryptocurrency constitutes a uniquely "strong barometer of liquidity conditions."
US bitcoin ETFs had good day yesterday pushing YTD flows to new high water mark of $17.8b. They’re now 92% of the way to owning 1million bitcoin and 83% of way to passing Satoshi as top holder. Tick tock.. pic.twitter.com/kTxlIzjJy6
— Eric Balchunas (@EricBalchunas) September 25, 2024
Given this macro paradigm, it is hardly a surprise that spot Bitcoin ETFs' year-to-date net inflows have now reached a new high of $17.8 billion. What's more, these ETFs now hold 916,047 BTC, which is just shy of Satoshi Nakamoto's gigantic 1.1 million BTC stash.
