How to track liquidity in crypto:
Liquidity refers to the amount of money available in the economy. It's like water in the ocean. When there is a lot of water, all boats (or, in this case, cryptocurrencies) can easily float higher.
Liquidity measurement: We use 'M2' to measure liquidity. M2 includes all the money that people have, both in cash and in their bank accounts.
The impact of liquidity: When M2 increases, it means that people have more money available. This usually occurs due to lower interest rates or the government printing more money. With more money available, people tend to invest, which drives the cryptocurrency market and increases prices.
The market cycle: Like the tides of the ocean, the amount of money available (liquidity) rises and falls. This fluctuation directly affects the market. When liquidity increases, cryptocurrencies rise. When liquidity decreases, cryptocurrencies tend to fall.
The importance of global liquidity: Global liquidity is like the first domino in a row; When it falls, everything else is affected. It usually impacts the stock market, as more liquidity reduces borrowing costs. As M2 increases, greed may also increase. This leads people to look for higher profits in the cryptocurrency market.
The Source of Liquidity: So where does this crucial liquidity come from? Mainly from government actions, such as changes in interest rates or increases in public spending. These policies can increase or decrease the amount of money circulating in the economy.