Bitcoin's correlation with global liquidity: a signal for a powerful rally
The cryptocurrency market, like traditional assets, follows a single law: the price of Bitcoin and tech stocks is determined not by corporate reports or news flow, but by the total amount of money in the financial system. The current downturn in the crypto market is not a collapse of the model, but merely another phase of the cycle that fully fits this logic.
Liquidity as a driver, not news
Many investors mistakenly look for reasons behind asset movements in company earnings or news events. In reality, both Bitcoin and the Nasdaq index clearly follow the amount of money in the economy. Bitcoin's correlation with global liquidity stands at an impressive 87%, while for the Nasdaq, this figure reaches 97%.
The difference between these assets lies only in the amplitude of fluctuations. The first cryptocurrency deviates from the liquidity trend much more strongly than the index. This is explained by the asset's youth, sharp price swings, trader emotionality, and network immaturity. As a result, the market either overheats significantly or cools down sharply.
We are currently observing a phase of calm. It is this phase that creates an illusion among some participants that the mechanism is broken. However, this is not the case: the asset is behaving in its usual manner, simply consolidating at the moment before the next move.
Forecast of currency depreciation for years ahead
The close link to the money supply leads to a logical question: can an accurate forecast of liquidity itself be made? The answer is yes. The calculations are based on the concept of "The Everything Code." According to this theory, the volume of money directly depends on currency depreciation. Depreciation itself can be modeled for many years ahead, since interest payments on government debts are already known today. Moreover, they lead the dynamics of the money supply by about three years.
The chain of cause and effect looks like this:
- The volume of debt and the costs of servicing it are known in advance.
- The need to roll over loans forces authorities to print new money.
- An increase in the money supply leads to a rise in risky assets with a time lag.
The logic is simple: if liquidity in the system grows (and this is inevitable due to currency depreciation), then both assets—Bitcoin and the Nasdaq—will rise along with it. Bitcoin will simply do so more strongly. From this model, it follows that the current cooling phase is more of an entry point than a reason to exit. However, it is important to remember: past correlation does not guarantee future results.
My professional opinion: Investors who are currently panicking are overlooking the main macroeconomic trend. As long as central banks are forced to increase the money supply to service debts, Bitcoin will remain one of the main beneficiaries of this process. The current correction is not the end, but an opportunity.