NOIDA (CoinChapter.com)—Bitcoin’s price has struggled to maintain its recent highs, slipping below $90,000 as market sentiment shows signs of caution. The cryptocurrency, which briefly touched all-time highs in Dec. 2024, now faces headwinds linked to broader macroeconomic conditions.
The price drop coincides with a shift in liquidity conditions, as the global M2 money supply, a key indicator of economic liquidity, has shown signs of stagnation and decline. The general market sentiment indicates market participants believe Bitcoin’s status as a liquidity-sensitive asset places it at risk during periods of tighter monetary policy and reduced market liquidity.
Adding to this sentiment, a recent tweet speculating that BTC price could grind lower into the $70,000-$80,000 range could introduce FUD in the market, sparking renewed debate about the cryptocurrency’s short-term trajectory.
Global Liquidity Crunch Could Signal Trouble for BTC
A tweet by @The0xReport speculates that Bitcoin may retreat to the $70,000-$80,000 range due to tightening global liquidity conditions. The chart accompanying the tweet showed Bitcoin’s price closely following trends in the global M2 money supply, albeit with a lag of about 10 weeks.
The tweet highlighted a drop in global M2 levels.
The recent plateau in M2 supply coincides with Bitcoin’s sharp pullback from $100,000 to $92,500, suggesting that diminishing liquidity is playing a key role in the cryptocurrency’s decline. The tweet highlighted how BTC price tends to reflect broader liquidity trends.
Historical patterns lend further credence to this analysis. Data from MacroMicro reveals that Bitcoin thrived during periods of rapid M2 expansion, such as 2020-2021, when central banks injected unprecedented liquidity into the global economy to combat the effects of the COVID-19 pandemic. The surge in liquidity fueled speculative investment, propelling BTC prices to new heights.
BTC price vs M2 supply of four major central banks.
However, when central banks began tightening monetary policies in 2022, reducing M2 growth, Bitcoin entered a prolonged bearish phase. The price action reinforces the narrative that the token’s price trajectory is intrinsically tied to global liquidity dynamics.
Currently, the M2 money supply remains stagnant, reflecting a continuation of restrictive monetary policies by major central banks. This has reduced speculative capital flows into assets like Bitcoin, increasing the likelihood of a deeper correction. The projected consolidation zone of $70,000-$80,000 aligns with historical price levels observed during previous liquidity contractions.
As central banks show no signs of loosening policies, the token’s performance will likely remain subdued in the short to medium term, reflecting its dependency on global liquidity trends.
Bitcoin Price Rally Failed To Defy Bearish Setup
The BTC USD pair’s recent bull run did not help the token break out of a bearish technical setup called the ‘rising wedge.’
The BTC USD pair has formed a bearish setup with a 90% downside target. Source: Tradingview
The rising wedge pattern signals a potential reversal in the current trend. Identified by two upward-sloping lines converging towards each other, the resistance line ascends at a gentler slope than the support line.
The pattern forms during an upward trend with a series of higher highs and higher lows, indicating reduced buying momentum. As the wedge progresses, the distance between the resistance and support lines decreases, showing weakening momentum.
Typically, the rising wedge leads to a downward breakout. The price breaks below the support line, often with increased trading volume, signaling strong selling pressure.
Traders calculate the price target for the pattern by measuring the vertical distance between the wedge’s initial high and low points and subtracting this from the breakout point.
Per the rules of technical analysis, if the Bitcoin price breaks below the bearish pattern, the BTC USD pair might fall to the theoretical price target near $8,740, a drop of over 90% from current levels.
However, a drastic drop might not come to fruition. Yet, Bitcoin price could drop to the pattern’s support line, reaching a level near $53,100, significantly higher than the pattern’s theoretical target, but still a 43% drop from current levels. Realistically, BTC price has a key support level near $90,000, which could force the token to test the support near $82,400.
