Increased Liquidity Will Inject Energy for Bitcoin’s Next Bull Run
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| By Alex Benfield |
In the kaleidoscope world of crypto, the past three weeks have been a somewhat dull monochrome. But rather than standing still, it’s lying in wait, hovering just shy of a breakout, waiting for a jolt to launch into a spirited dance.
Looking at the macroeconomic factors that could trip the wire brings us to the latest Consumer Price Index data, our inflation barometer, which was released today.
In short, it underperformed, marking another notch in a growing pattern of falling inflation.
Here’s the breakdown: CPI came in at 3%, slightly under the anticipated 3.1%. And core CPI came in at 0.2% month over month, just shy of the expected 0.3% and less than last month's 0.4%.
It looks increasingly likely that the Federal Reserve has slayed the inflation dragon.
Yet despite the slack in CPI and a hiatus in interest rate hikes, the crypto market remains steadfast in its somber standstill.
If falling inflation isn’t enough to kickstart the market into moving, what will?
Well, the other large topic of concern is the brittle banking sector and the speculation over what is brewing in the mysterious chambers of the Fed that could shake things up.
Remember, many banks are still underwater on investments due to the higher interest rates today. If the Fed continues to raise rates later in the year as it has suggested, that will only put more pressure on smaller regional banks.
Because of this, I don’t think we’ve seen the end of the banking crisis just yet. And if previous trouble in the banking sector is any indication as to what could happen if more banks collapse, then we would expect more money to flow into the crypto sphere as people fear the banks.
But honestly, U.S. interest rates and rebuilding the banking sector are just one piece of a larger puzzle when it comes to understanding the crypto market.
By and large, global liquidity plays a greater role in influencing crypto than interest rates. Interest rates and shoring up banking are merely two pieces in the larger puzzle of how global liquidity interacts with the crypto market.
Another piece is institutional investors, which is why the recent news of institutional interest in crypto via multiple exchange-traded fund applications has so many savvy investors watching this latest round of attempts so carefully.
The outsized impact global liquidity plays on crypto versus TradFi can be traced back to the fundamental nature of blockchain technology.
Cryptocurrencies like Bitcoin (BTC, “A-”) were created as an alternative to traditional fiat currencies and the banking systems that control them. They stand as a testament against inflation and the centralized manipulation of monetary policy.
Hence, when global liquidity is high and money is readily available, we tend to see a surge in crypto investments. This happens as investors look to diversify their portfolios and hedge against potential inflation due to the excessive money printing in traditional markets.
It works like this: When central banks like the Fed pump money into the economy, this increases liquidity. And it essentially devalues the currency. But the supply of most cryptocurrencies is capped.
This inherent scarcity of crypto juxtaposed with potentially rampant inflation in traditional markets makes cryptocurrencies an attractive investment. Hence, as the adage goes in the crypto world, "As long as the money printer whirs, crypto will rise."
So, if the world's major central banks continue to pump money into the financial system, we could see a sustained bull market in crypto, irrespective of the trajectory of interest rates.
The flip side of this coin is that if central banks choose to tighten monetary policy — sucking liquidity out of the markets — it could spell trouble for all asset classes, including cryptocurrencies.
As we look ahead, we will be keeping a watchful eye on the global liquidity situation, and specifically the actions of the Federal Reserve. These two factors will be vital in anticipating the future movements of the crypto market.
But for now, as I said earlier, the price of Bitcoin hasn’t moved much at all, adding more proof to my point that much of this has already been baked into the current price.
BTC is currently sitting just above $30,000 and has been rejected by the resistance at $31,000. As soon as BTC closes above that level and holds above it for a few days, it will likely make a run for $36,000 at minimum and could even go as high as $40,000.
We’re keeping a close eye on Bitcoin as it is currently leading all crypto. Its direction will likely decide the fate of the rest of the crypto market moving forward.
In a nutshell, we're at a critical moment in the world of crypto. We’ll just have to see which stream of liquidity will be the one to push crypto out of its sideways action and past $31,000.
Although we can’t predict for sure what driving force will spark the next big move in crypto, one thing is clear: Investors are at the edge of their seats, eagerly waiting to see what happens next.
For now, we’ll keep a close eye on Bitcoin for you and keep you updated so you can prepare yourself for the next big swing in the crypto market.
Best,
Alex
