- Declining demand for US Treasuries could signal a capital shift to riskier assets, including Bitcoin.
- Currently, Bitcoin social volume is trending upward, although it is still below the levels we saw during the 2021 bull market.
Global liquidity has consistently affected asset prices, including Bitcoin [BTC]. By analysis, liquidity inflows, represented by M2 (a measure of the money supply), are consistent with Bitcoin’s growth, albeit with a slight lag.
On the other hand, as the US Federal Reserve continues its quantitative tightening (QT) policy, declining demand for US Treasuries (UST) may indicate a capital shift towards riskier assets, including Bitcoin.
CryptoQuant
This potential shift, coupled with broader global liquidity dynamics, could support Bitcoin’s bull market even in the absence of immediate quantitative easing (QE).
Bitcoin’s price movement and global M2 liquidity
Bitcoin’s price corresponds to the Global M2 Day-over-Day (DoD) 30DMA. The most notable example occurred after the COVID-19 liquidity injection, when Bitcoin’s price rose to its all-time high after a rapid rise in M2.
More recently, despite the Federal Reserve’s QT stance, global liquidity has shown a slight upward trend, supporting Bitcoin’s current price recovery.
This recovery is in line with the historical trend of delayed responses to M2 inflows. A bell curve-shaped growth pattern in M2 corresponds to Bitcoin’s long-term bullish moves, highlighting how liquidity positively impacts Bitcoin’s price.
If the Federal Reserve intervenes due to a potential crisis in government bonds, the M2 could rise sharply. Such an intervention would likely push Bitcoin prices back up.
With the current rise in M2, Bitcoin could retest its previous highs if liquidity persists, pointing to a possible bullish breakout in 2024.
Market sentiment and Bitcoin’s potential growth
The Greed & Fear Index reflects market sentiment and has a significant impact on Bitcoin’s price movement. Historically, Bitcoin has tended to recover when the index shifts from extreme fear to neutral or greedy levels.
Currently, this measure signals cautious optimism, moving from the fear-driven lows of earlier this year to more neutral sentiment.
Trading view
This is consistent with the global liquidity chart, where a slight increase in the M2 coincided with Bitcoin’s recent price recovery.
If sentiment continues to improve, supported by increasing liquidity and reduced demand for USTs, traders may choose to allocate capital to riskier assets such as Bitcoin, which will fuel further price growth.
Looking ahead, the Greed & Fear Index is likely to strengthen if Bitcoin remains above key psychological levels. However, any unexpected Fed tightening measures or geopolitical uncertainties could raise fears and dampen the rally.
Traders should keep a close eye on sentiment as it aligns with liquidity trends for timing long positions.
A measure of market engagement
Social Volume, which tracks the frequency of Bitcoin mentions on social media platforms, is a leading indicator of market engagement.
During significant liquidity-driven price movements, social activity often peaks, reflecting increased interest from both retail and institutional investors.
Source: Santiment
Currently, Bitcoin social volume is trending upward, although it is still below the level observed during the 2021 bull market. This indicates growing interest as Bitcoin recovers, but not yet a euphoric market state.
The lagged response in Social Volume is consistent with the slight lag in Bitcoin’s response to M2 liquidity inflows, as shown in the chart.
If social volume continues to rise, it could indicate greater market participation and a strengthening bull trend. However, subdued activity could indicate hesitation among traders, potentially leading to slower price growth.
Monitoring this measure alongside liquidity trends and technical support levels could provide early signals of continued upside momentum.
Network activity as a bullish indicator
Higher activity levels correspond to periods of increased price momentum, as more participants indicate stronger network demand.
Recent data shows a steady increase in the number of active addresses, reflecting renewed interest among traders and investors.
This coincides with the slight increase in global M2 liquidity and the recent BTC price recovery. The pattern supports the hypothesis that liquidity inflows stimulate market activity, even if it slows down.
Source: CryptoQuant
If the number of active addresses continues to increase, it signals growing confidence in the network and reinforces a potential bull market. However, a stagnation or decline in activity may indicate hesitation or profit-taking among participants.
BTC’s recent price recovery underlines BTC’s sensitivity to global liquidity trends, as shown by its correlation with 30DMA in the chart.
Despite continued quantitative tightening by the Federal Reserve, the slight increase in global liquidity, coupled with declining demand from the US dollar, has provided a foundation for Bitcoin’s growth.
Read Bitcoin’s [BTC] Price forecast 2024-25
A shift from fear to cautious optimism signals improving market sentiment, while rising social engagement reflects growing interest. Moreover, the rising active addresses indicate a strengthening of network activity.
Looking ahead, the interplay between global liquidity, market sentiment and network activity will remain crucial. If systemic risks prompt Federal Reserve intervention, BTC could see an accelerated bull run driven by renewed capital inflows.