Global Liquidity Soars, But Why Isn’t Bitcoin Following?
Global M2 money supply has hit an all-time high, yet Bitcoin isn’t surging. What’s going on?
Markets are on edge as the Federal Reserve’s March 18-19 meeting approaches. Economic conditions are volatile,with stock markets faltering and inflation persisting. Investors are rethinking their expectations for interest rate cuts.
President Trump’s tariff policies and federal layoffs have added to the uncertainty. The Federal Open Market Committee is expected to keep rates unchanged at 4.25-4.5%. Though, the timing of the first rate cut is the real focus. A potential reduction in June is projected, with rates possibly moving to 4-4.25%.
Investors anticipate a cumulative reduction of three-quarters of a percentage point in 2025. This could bring the Fed’s benchmark rate down to 3.5-3.75%. The S&P 500 has dropped over 8% from its February high, while the Nasdaq fell 4% on March 10.
Bitcoin has also struggled, staying around $82,300 as of March 18. It’s down nearly 25% from its January high of $109,114. The question is: What comes next?
Global liquidity is surging, and history suggests risk assets like Bitcoin may soon react. As of March 10, global M2 money supply reached $108.2 trillion,a 3.5% increase from its 2025 low.
M2 money supply is a broad measure of global liquidity. When M2 expands,liquidity typically finds its way into high-yielding investments,leading to rallies in stocks,commodities,and Bitcoin.
Bitcoin’s price action has shown inconsistencies despite the rise in liquidity. Research suggests an average lag of approximately 10 weeks before Bitcoin fully reflects changes in M2 growth.
Keep an eye on changes in global liquidity. It’s one of the most critically important long-term factors driving Bitcoin.
Fed’s QT Program May Soon End, Impacting bitcoin and Markets
The Federal Reserve’s quantitative tightening (QT) program, which began in June 2022, might be nearing its end. As of March 18, traders on Polymarket bet $6.2 million, predicting a 100% chance that QT will conclude by April 30.
QT is the opposite of quantitative easing (QE). Instead of buying bonds to inject liquidity, the Fed lets assets mature off its balance sheet, reducing money in circulation. This policy, along with rate hikes, helped control inflation but also created liquidity constraints affecting markets.
Minutes from the January FOMC meeting showed policymakers considering slowing or pausing QT due to uncertainties about the federal debt ceiling and money market conditions. Analysts note that Treasury’s measures to fund government operations have temporarily injected liquidity, complicating the Fed’s assessment of reserve levels.
While some expect QT to end soon, Barclays projects it will conclude between september and October. Wrightson ICAP believes the Fed may slow asset runoffs rather than stop them entirely. LH Meyer warns that a pause could become a full stop, complicating future asset purchases.
Historically,ending QT has been tricky. If the fed signals a stop, it could mean lower long-term interest rates, a weaker dollar, and increased demand for risk assets like Bitcoin and stocks.
However, despite rising M2 money supply, Bitcoin’s price action shows signs of exhaustion. CryptoQuant CEO Ki Young Ju warns that on-chain metrics signal a bear market, with fresh liquidity drying up and new whales selling BTC at lower prices.
One key metric is MVRV, which compares Bitcoin’s market value to the price at which coins last moved. This helps determine if BTC is overvalued or undervalued.
Bitcoin Faces Consolidation Phase and Institutional Challenges
Key metrics like SOPR and NUPL suggest Bitcoin might enter a 6-12 month consolidation period. SOPR measures if holders sell at a profit or loss, while NUPL tracks overall profitability. This phase typically follows major bull runs.
Bitcoin’s response to rising liquidity could be delayed.Historically, liquidity expansions took months to boost prices. Simultaneously occurring, institutional headwinds are growing. The U.S. adopted a Bitcoin Strategic Reserve, signaling a shift in government views. However, global financial institutions are not pleased.
Max Keiser, a Bitcoin advocate, notes the IMF and credit rating agencies are lowering the U.S. credit rating due to Bitcoin’s “destabilizing influence.” The IMF recommends the U.S. liquidate its Bitcoin Strategic Reserve. This could lead to short-term downward pressure if the government sells its reserves.
Investors should stay cautious of near-term volatility. monitor liquidity trends and government actions closely. Bitcoin’s next major move may require patience.Always trade wisely and invest within your risk tolerance.
