The decline in demand for U.S. Treasuries may indicate a shift of capital towards higher-risk assets, including Bitcoin.
Currently, Bitcoin's social volume is on the rise but remains below the levels seen during the 2021 bull market.
Global liquidity has always affected asset prices, including Bitcoin [BTC]. Analysis shows that liquidity inflows represented by M2 (a measure of money supply) are in line with the growth of Bitcoin, although with a slight delay.
On the other hand, despite the Fed continuing to implement quantitative tightening (QT) policies, the declining demand for U.S. Treasuries (UST) may signal a shift of capital towards higher-risk assets, including Bitcoin.
This potential shift, combined with broader global liquidity dynamics, could support a Bitcoin bull market even in the absence of direct quantitative easing (QE).
Bitcoin's price movements and global M2 liquidity
The price of Bitcoin is correlated with the global M2 daily-on-daily (DoD) 30DMA. The most notable example occurred after the COVID-19 liquidity injection, when Bitcoin's price soared to an all-time high along with the rapid growth of M2.
Recently, despite the Fed adopting a quantitative easing stance, global liquidity has shown a slight upward trend, supporting Bitcoin's current price rebound.
This recovery aligns with the historical trend of delayed responses to M2 inflows. The bell-shaped growth pattern of M2 corresponds with Bitcoin's long-term bullish trend, highlighting how liquidity positively impacts Bitcoin's price.
If the Fed intervenes due to a potential Treasury crisis, M2 could rise significantly. This intervention could once again drive up Bitcoin prices.
With the current rise in M2, if liquidity continues, Bitcoin may retest its previous highs, indicating a potential bullish breakout in 2024.
Market sentiment and Bitcoin's potential growth
The Greed and Fear Index reflects market sentiment and significantly impacts Bitcoin's price movements. Historically, when this index shifts from extreme fear to neutral or greedy levels, Bitcoin tends to rise.
Currently, this indicator suggests a cautiously optimistic attitude, transitioning from the fear-driven lows earlier this year to a more neutral sentiment.
This is consistent with the global liquidity chart, where the slight increase in M2 matches the recent price rebound of Bitcoin.
If market sentiment continues to improve, coupled with increased liquidity and decreased demand for UST, traders may choose to allocate funds to higher-risk assets like Bitcoin, further driving up prices.
Looking ahead, if Bitcoin maintains above key psychological levels, the Greed and Fear Index may strengthen. However, any unexpected tightening measures from the Fed or geopolitical uncertainties could trigger panic, stifling upward momentum.
Traders should closely monitor sentiment, as it aligns with liquidity trends to determine the timing for bullish positions.
Market Participation Indicator
Social volume tracks the frequency of Bitcoin mentions on social media platforms and is a leading indicator of market participation.
During periods of significant price volatility driven by liquidity, social activity often surges, reflecting increased interest from retail and institutional investors.
Currently, Bitcoin's social volume is on the rise but remains below the levels seen during the 2021 bull market. This indicates that as Bitcoin recovers, interest is increasing but has not yet reached euphoric market conditions.
The delayed response of social volume corresponds with Bitcoin's slightly lagging reaction to M2 liquidity inflows, as illustrated in the chart.
If social volume continues to rise, it may indicate increased market participation and a strengthening bull trend. However, low activity may suggest traders are hesitant, potentially slowing price growth.
Monitoring this indicator, along with liquidity trends and technical support levels, can provide early signals of sustained upward momentum.
Network activity as a bullish indicator
Higher activity levels coincide with periods of increased price momentum, as more participants indicate stronger network demand.
Recent data shows a steady increase in active addresses, reflecting a rekindling of interest from traders and investors.
This aligns with the slight increase in global M2 liquidity and the recent price rebound of BTC. This pattern supports the hypothesis that liquidity inflows drive market activity, even with delays.
If active addresses continue to increase, it indicates growing confidence in the network and strengthens the potential bull market. However, stagnation or decline in activity may suggest participants are hesitant or taking profits.
The recent price rebound of BTC highlights its sensitivity to global liquidity trends, as shown by the correlation with the 30DMA in the chart below.
Despite the Fed's ongoing implementation of quantitative tightening, global liquidity has slightly increased, coupled with a decline in U.S. Treasury demand, providing a foundation for Bitcoin's growth.
The shift from fear to cautious optimism indicates an improvement in market sentiment, while the increase in social participation reflects growing interest. Additionally, the rise in active addresses suggests strengthening network activity.
Looking ahead, the interaction between global liquidity, market sentiment, and network activity will remain crucial. If systemic risks prompt Fed intervention, BTC could accelerate its bull market driven by new capital inflows.
