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As Bitcoin (BTC) inches closer to the $70,000 mark, the crypto community is buzzing with predictions of a potential surge to $100,000, accompanied by a significant altcoin season. Amid this enthusiasm, crypto analyst Axel Bitblaze has done just that as long as an analysis of X, examining whether the necessary liquidity and catalysts are in place to propel Bitcoin to such heights.
Bitblaze emphasizes the fundamental role of liquidity in the crypto market. Drawing parallels to previous bull runs, he notes: “Our space is completely driven by one thing and one thing only, which is liquidity.” He points to the 2016 and 2020 bull markets, both of which were fueled significantly by increasing liquidity. This time, the question is whether there are similar or larger liquidity events on the horizon that will drive Bitcoin’s price higher.
#1 Bitcoin surge will be fueled by stablecoins
A cornerstone of Bitblaze’s analysis is the current state of the stablecoins market. He describes stablecoins as “the gateway to the crypto industry,” underscoring their indispensability to the crypto ecosystem. The total market capitalization of stablecoins has risen to $173 billion, reaching the highest level since the collapse of TerraUSD (UST).
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Tether (USDT) remains the dominant player, accounting for 69% of the total stablecoin market cap at $120 billion. Highlighting the historical correlation between BTC prices and USDT market cap, Bitblaze states: “Between March 2020 and November 2021, the USDT MCap rose 17x, while the BTC price rose 16.5x.”
However, despite USDT’s market capitalization continuing to rise, Bitcoin’s price has remained relatively stable since March 2024. “This indicates that there is a lot of liquidity on the sidelines waiting to enter BTC and crypto. I think they’ll start their deployment soon, right?’ says the analyst.
#2 FASB rule change
Another important factor is the upcoming change in accounting standards by the Financial Accounting Standards Board (FASB). Currently, publicly traded companies face challenges in holding Bitcoin due to adverse accounting treatments.
Bitblaze explains: “Let’s say a company bought 100 BTC for $67,000 each. If BTC drops to $60,000 and then rises to $68,000, the company will still have to report it at $60,000… they will have to show it as a loss even though there is a profit.” This results in misleading earnings reports and has a negatively impacting stock prices, discouraging companies from investing in Bitcoin despite its potential as an asset.
The upcoming FASB rule change, due to be implemented in December 2024, is poised to address this issue. Under the new guidelines, companies will be able to report the fair value of their Bitcoin holdings based on market prices at the end of the reporting period. Bitblaze suggests that this shift in regulation could encourage more companies to adopt Bitcoin as part of their balance sheets.
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He cites MicroStrategy as a precedent, noting that the company has amassed 252,220 BTC worth $17.4 billion since August 2020, and is currently seeing a profit of $7.4 billion. With S&P 500 companies collectively holding approximately $2.5 trillion in cash and cash equivalents – assets vulnerable to inflation – Bitcoin presents itself as an attractive, inflation-proof alternative.
#3 Expanding the M2 money supply
Bitblaze also delves into the macroeconomic landscape, specifically the M2 money supply, which includes cash, checks, and other easily convertible funds. Currently, the M2 money supply is $94 trillion, almost 39 times the total crypto market capitalization.
Bitblaze points to an analysis indicating that “for every 10% increase in M2 money supply, BTC pumps 90%.” Despite the M2 money supply being about 3% higher than its previous peak, Bitcoin has yet to surpass its 2021 high, suggesting plenty of liquidity remains untapped.
“Currently, M2 money supply is almost 3% higher than the last peak, while BTC is still below its 2021 high. With global interest rate cuts happening along with QE, fiat will become a worse investment. As Ray Dalio said: #Cash is Trash,# and now this gigantic supply of money will find its way into various asset classes, including crypto; the analyst claims.
#4 Shift from money market funds to Bitcoin
Since November 2021, money market mutual funds have grown to $6.5 trillion as investors sought the safety of government bonds amid rising interest rates. However, now that the Federal Reserve has initiated interest rate cuts and indicated that more will follow, Treasury yields are expected to decline, likely causing significant outflows from money market funds.
Bitblaze predicts: “This will trigger massive outflows from money market funds as government bond yields decline,” suggesting investors will seek higher returns in riskier assets like Bitcoin and other cryptocurrencies. He calls these digital assets “the fastest horses” in a QE environment and predicts that this shift could channel substantial capital into the crypto markets.
To quantify the potential inflows, Bitblaze aggregates the available liquidity sources: the M2 money supply of $94 trillion, money market funds totaling $6.5 trillion, cash holdings of S&P 500 companies worth $2.5 trillion, and the market cap of stablecoins of $173 billion. This brings the total to approximately $103.17 trillion, which is 43 times the current total cryptocurrency market cap.
He further addresses skeptics and concludes: “For a $200 billion inflow, only 0.19% of this account needed to go to crypto. For those who think this is not possible and 200 billion is too much, BTC ETFs had net inflows of over $20 billion, despite sideways price movements, no interest rate cuts and no quantitative easing.”
At the time of writing, BTC was trading at $66,944.
Featured image created with DALL.E, chart from TradingView.com