The Most Obvious Catalyst for a Bitcoin Rally
Robert Ross|July 2, 2024
“What happened to Bitcoin?”
That’s the question I got from subscribers after Bitcoin’s dip on June 24.
The crypto dropped nearly 8%. That was the worst day for the world’s largest cryptocurrency since March 2023… during the height of the regional bank panic.
Back then, investors thought USDC – a stablecoin tethered to the U.S. dollar – would collapse due to its issuer’s assets being held in Silicon Valley Bank.
That was a very serious and uncertain situation. It made sense that Bitcoin pulled back 8% on the news.
Now, though, I can’t find any good answer for Bitcoin’s current pullback other than “profit taking”… much to the chagrin of my subscribers.
When I hear analysts blaming “profit taking” for a crypto pullback, I just assume there isn’t a real reason and it mostly had to do with the market’s “animal spirits.”
So while I may not have a good answer for why Bitcoin was down 8% last week… I do have a good reason for why Bitcoin is still early in this bull run.
And it all has to do with global liquidity.
The First True Global Asset
The Bitcoin network is the world’s first truly global asset.
Its decentralized nature means that Bitcoin is traded and valued in every country. It’s a universal form of digital money that trades 24/7 across borders. This global reach also means Bitcoin is more susceptible to changes in global liquidity.
Global liquidity is the amount of money and credit available in the world that can be easily accessed and used for spending or investment.
Think of it as the global “money supply.” When there’s a lot of liquidity, it means that businesses, investors, and consumers have plenty of money to spend, invest, and lend. Stocks, real estate, and – you guessed it – cryptocurrencies, see higher prices as more money chases these investments.
Global liquidity is influenced by central bank policies, interest rates, and economic conditions around the world.
For instance, when central banks inject money into the economy, liquidity increases, often leading to higher investment in risk assets like Bitcoin.
We’ve actually seen that happen in the past month, as the European Central Bank (ECB) and Bank of Canada (BoC) have both lowered interest rates.
On the flip side, when liquidity is withdrawn, Bitcoin can see volatility and price declines. That’s why the crypto is both a dynamic and unpredictable investment. It reflects the broader economic trends and monetary policies across the globe.
But I’m seeing signs we’re in the early stages of a global liquidity boom.
And that’s good news for all risk assets, but especially Bitcoin.
Fire Up the Printing Presses
Only a few central banks – the ECB and BoC – have cut interest rates this year.
But according to data compiled by the Financial Times, global liquidity is likely about to surge.
This chart comes from CrossBorder Capital, an investment research firm focused on global liquidity and capital flows. Their data implies that we are in the early stages of a global liquidity boom. The drivers of this liquidity – or cash and credit sloshing around in financial markets – are global central banks cutting interest rates.
But the boom is also a function of direct capital injections into financial markets, like we saw in Japan and China earlier this year…
Our Federal Reserve has been skittish about rate cuts… but it is still adding to global liquidity in other ways. That includes the emergency Bank Term Funding Program during the regional bank crisis in 2023 and its reverse repo facility. These facilities alone increased total U.S. liquidity by 13% in 2023.
And we’re just getting started.
Sensitive to Change
This influx of global liquidity is particularly beneficial for Bitcoin.
Again, the crypto has shown a strong correlation with global liquidity cycles. When liquidity is abundant, capital flows into Bitcoin, driving up its price. Conversely, when liquidity tightens, the crypto often experiences sell-offs.
The current environment, with the potential for increases in global liquidity, sets the stage for Bitcoin to resume its upward trajectory.
It won’t be a straight line up. There will of course be pullbacks and corrections along the way.
As central banks around the world continue to ease monetary policies and inject capital into the markets, Bitcoin stands to benefit.
That’s why my target price for Bitcoin in this cycle remains $165,000, with much higher long-term potential as global adoption and liquidity continue to grow.
And it’s why Bitcoin is still a “Buy.”
Robert Ross
Robert Ross’s unique style of clear and direct stock research helped him build a massive following in the investment research industry, starting his career at investment research company Mauldin Economics and quickly rising through the ranks to become one of the youngest chief analysts in the industry. Today, over a million investors turn to Ross every month for his take on investing, economics, and personal finance. He now shares his unique insights in Total Wealth and Manward Money Report.
