Bitcoin’s Stagnation Defies Global Monetary Expansion - Here’s Why It Matters
Bitcoin's price paralysis continues as central banks flood markets with liquidity. The disconnect grows more glaring by the day.
The Great Monetary Experiment
Central banks worldwide keep printing money like there's no tomorrow—yet Bitcoin refuses to budge. Traditional economic models would predict a surge in alternative assets during quantitative easing cycles. But crypto markets operate on their own rhythm.
Technical Resistance Meets Macro Uncertainty
Key resistance levels hold firm while institutional investors weigh inflation concerns against regulatory headwinds. The usual correlation between money supply growth and Bitcoin appreciation has broken down—for now.
Market Psychology at Play
Traders watch from the sidelines as volatility compresses to unprecedented levels. The calm before the storm? Or signs of a market losing its narrative? Meanwhile, traditional finance veterans smugly note another 'failed inflation hedge'—as if their 2% bond yields are saving the world.
When the dam breaks, it won't be gradual. Global liquidity has to go somewhere—and digital gold remains the most logical escape hatch from currency debasement. The stagnation can't last forever.
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In recent months, Bitcoin
$111,809 has faced a puzzling stagnation, prompting analyses from various financial experts. Despite a backdrop of global monetary expansion, the cryptocurrency has failed to mirror its traditional correlation with the global M2 money supply. Historically, Bitcoin’s value has shown a tendency to follow changes in liquidity conditions with a lag. However, since mid-July, instead of a significant upward movement in Bitcoin’s price, there has been sideways trading, causing intrigue and speculation in the financial community.
Why Has the Correlation Broken?
A potential explanation for the divergence lies in the actions of the U.S. Treasury. The Treasury’s recent MOVE to refill its Treasury General Account (TGA) significantly drained liquidity from the market. This account functions as the government’s operational hub at the Federal Reserve, where taxes, bond sales, and various other revenues are collected. By issuing a substantial amount of bonds, the Treasury reduced the market’s liquidity, impacting assets that rely on these conditions, such as Bitcoin.
What Future Does Bitcoin Hold?
Raoul Pal, founder of Global Macro Investor, argued that the current liquidity drain is a temporary hurdle.
“The liquidity drain from the Treasury has meant that we’ve seen a significant decrease in available capital for riskier assets like Bitcoin,”
he explained. He expects that as the TGA is sufficiently replenished, this liquidity drain will cease, normalizing conditions. This normalization might allow bitcoin to resume its upward trajectory, following its historical correlation with the M2 money supply.
Pal remains optimistic that Bitcoin will realign with its traditional patterns soon.
“It appears that with the TGA now at a comfortable level, we should see normal liquidity conditions returning by month-end,”
he stated. These expectations suggest that the current stagnation might be a short-term anomaly, rather than a prolonged trend.
While Pal’s assertions are persuasive, they must be considered against the backdrop of other financial assets. Financial markets have shown varied responses, with technology stocks and Gold achieving record highs. This contrast indicates that broader risk appetites are intact, seemingly unaffected by the liquidity constraints affecting cryptocurrencies.
In addition to liquidity issues, increased selling pressure from early Bitcoin investors might have exacerbated the stagnation. Rapid sell-offs from these accounts WOULD have intensified the supply, further impacting Bitcoin’s price, despite global monetary policy expansion.
Though Bitcoin faces multiple challenges currently, its historical performance during global monetary expansion provides a nuanced perspective. For investors, understanding these dynamics, alongside liquidity trends and broader market behaviors, may yield insights into Bitcoin’s future movements. While present conditions are unusual, the potential for normalization exists, providing a hopeful outlook for proponents of the cryptocurrency.
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