The decline in demand for U.S. Treasuries may indicate a shift of capital towards riskier assets, including Bitcoin.
Currently, Bitcoin's social volume is on the rise, but still below the levels seen during the 2021 bull market.
Global liquidity has consistently influenced asset prices, including Bitcoin [BTC]. Analysis shows that liquidity inflows, represented by M2 (a measure of money supply), have aligned with Bitcoin's growth, albeit with a slight delay.
On the other hand, despite the Federal Reserve's continued implementation of quantitative tightening (QT) policies, the decline in demand for U.S. Treasuries (UST) may signal a shift of capital towards riskier assets, including Bitcoin.
This potential shift, combined with broader global liquidity dynamics, may support Bitcoin's 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 day-over-day (DoD) 30DMA. The most notable example occurred after the COVID-19 liquidity injection, when Bitcoin's price soared to an all-time high alongside rapid M2 growth.
Recently, despite the Federal Reserve 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 curve growth pattern of M2 coincides with Bitcoin's long-term bullish trend, highlighting how liquidity positively affects Bitcoin's price.
If the Federal Reserve intervenes due to a potential Treasury bond crisis, M2 could rise significantly. Such intervention may again push Bitcoin prices higher.
With the current rise in M2, if liquidity continues, Bitcoin may re-test 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, which has a significant impact on Bitcoin's price movements. Historically, when this index shifts from extreme fear to neutral or greedy levels, Bitcoin tends to rise.
Currently, the indicator suggests a cautiously optimistic attitude, shifting from the fear-driven lows earlier this year to a more neutral sentiment.
This is consistent with the global liquidity chart, where a slight increase in M2 aligns with the recent price rebound of Bitcoin.
If market sentiment continues to improve, coupled with increased liquidity and reduced demand for UST, traders may opt to allocate funds to riskier assets like Bitcoin, further driving prices upward.
Looking ahead, if Bitcoin maintains above key psychological levels, the Greed and Fear Index may strengthen. However, any unexpected tightening measures from the Federal Reserve or geopolitical uncertainties could trigger panic, suppressing upward momentum.
Traders should closely monitor sentiment as it aligns with liquidity trends to determine the timing of long positions.
Market participation indicator
Social volume tracks the frequency of mentions of Bitcoin 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 both retail and institutional investors.
Currently, Bitcoin's social volume is on the rise, but still below the levels seen during the 2021 bull market. This suggests that as Bitcoin recovers, interest is increasing, but has not yet reached an euphoric market state.
The delayed response of social volume corresponds with Bitcoin's slightly lagged 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 leading to a slowdown in 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 increasing price momentum, as more participants indicate stronger network demand.
Recent data shows a steady increase in active addresses, reflecting renewed interest from traders and investors.
This aligns with the slight rise in global M2 liquidity and the recent price rebound of BTC. This pattern supports the hypothesis that liquidity inflows drive market activity, even with a delay.
If active addresses continue to increase, it indicates growing confidence in the network and enhances the potential for a 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 its correlation with the 30-day moving average (30DMA) in the chart below.
Despite the Federal Reserve's ongoing implementation of quantitative tightening policies, global liquidity has seen a slight increase, 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 indicates strengthening network activity.
Looking ahead, the interplay between global liquidity, market sentiment, and network activity will remain critical. If systemic risks prompt Federal Reserve intervention, BTC may accelerate its bull market propelled by new capital inflows.
