As a seasoned crypto investor with over a decade of experience under my belt, I’ve seen my fair share of market fluctuations and trends. Sam Callahan’s latest research report, commissioned by Lyn Alden, has caught my attention, as it delves into the strong correlation between Bitcoin’s price and global liquidity.
In my latest study, I delve into the striking relationship between Bitcoin‘s market value and worldwide liquidity, a project commissioned by the insightful Lyn Alden.
Sam Callahan is a prominent figure in cryptocurrency, particularly known for his expertise in Bitcoin. He is the Lead Analyst at Swan Bitcoin, a platform dedicated to Bitcoin education, investment, and accumulation through recurring purchases. Callahan is highly respected for his in-depth research, insights, and analysis of the Bitcoin market, financial systems, and macroeconomic trends impacting the crypto industry.
Callahan points out that Bitcoin tends to align with worldwide liquidity fluctuations about 83% of the time over a year, exceeding other significant asset types in this regard. According to him, while Bitcoin’s association with liquidity is noteworthy, it may deviate temporarily, particularly during intense price swings. He emphasizes that considering global liquidity alongside on-chain Bitcoin analytics provides a more comprehensive perspective on Bitcoin’s price patterns and potential investment prospects.
As a crypto investor, I strongly believe in keeping a close eye on global M2, a comprehensive measure of money supply, as it offers valuable insights into the current state of liquidity. I prefer using this figure from major economies as a stand-in for overall liquidity, given the dollar’s status as the world’s reserve currency and its impact on dollar-denominated M2’s reliability. In my view, Bitcoin’s price tends to climb when liquidity increases and fall when it contracts, highlighting its sensitivity to these ever-changing liquidity conditions.
Callahan elaborates that Bitcoin tends to follow the flow of liquidity more closely compared to conventional investments like stocks, gold, and bonds. He highlights that although stocks are affected by liquidity, they are additionally impacted by earnings and passive investment, which muddies their relationship with liquidity compared to Bitcoin. Gold, while responsive to liquidity, is also considered a safe haven, resulting in a more complex correlation pattern.
Callahan considers Bitcoin as the most authentic indicator of liquidity since it doesn’t generate earnings or dividends like stocks and isn’t considered a secure asset such as gold or bonds. This feature makes Bitcoin more sensitive to shifts in liquidity, making it an appealing investment for those interested in monitoring liquidity trends.
Nevertheless, Callahan advises that Bitcoin’s link with liquidity might temporarily loosen due to market dynamics or unique incidents within the Bitcoin market. He mentions instances such as the Mt. Gox collapse and the 2020 COVID-19 crash, where Bitcoin’s price deviated from the usual trends related to liquidity.
Callahan underscores that using both liquidity indicators and on-chain assessment tools such as Bitcoin’s MVRV Z-score offers a more comprehensive perspective on Bitcoin’s price cycles. He suggests this method can assist investors in predicting instances where Bitcoin might deviate from liquidity patterns, thereby potentially improving the timing for buying or selling in the market.
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2024-09-26 22:58