Analysis of the Impact of Global Liquidity, Interest Rate, and Inflation on the Bitcoin Bull Run

Today we examine how key macroeconomic factors such as global liquidity, interest rates, inflation, and Federal Reserve announcements impact Bitcoin prices during a bull run. By conducting statistical and econometric analysis on historical data from 2014 to the present, we identify the trends and correlations of these factors affecting the market, providing insights for investment strategies.

Global Market Liquidity

Liquidity is key to a healthy economy, driving asset prices up and promoting active trading. It is mainly measured through the following indicators:

• Money Market Fund: Reflects the available liquidity in the financial system.
• Bank reserves: Indicate the liquidity available for loans and investments in the banking system.
• Liquidity coverage ratio: measures the liquidity health of a bank.
• Turnover Rate: Indicates market Liquidity

We mainly use M2 money supply as a measure. M2 includes cash, checking accounts, savings accounts, etc., reflecting overall economic Liquidity.

Historically, peaks in global M2 growth often coincide with Bitcoin bull runs. Not only is the total amount of money important, but the rate of change in M2 is also crucial. Bitcoin fluctuations typically align with changes in M2 momentum. During a bull run, special attention should be paid to M2, as the increased liquidity drives the market upwards.

There have been several significant bull runs in the history of cryptocurrency:

1. 2011-2013: During the European financial crisis, central banks increased Liquidity, and Bitcoin rose from $2.93 to $329.

2. 2015-2017: Low Intrerest Rate and increased money supply continued, Bitcoin rose from $200 to $19,000.

3. 2020-2021: The pandemic triggered large-scale stimulus measures, Bitcoin rose from $10,000 to $64,000.

4. 2024: Despite the overall Liquidity tightening, Bitcoin still reached a new high, rising from $25,000 to $85,000, indicating an increase in market maturity.

However, altcoins perform differently. Analysis shows that the altcoin/Bitcoin price ratio follows changes in global net liquidity, and an increase in overall liquidity may be needed for growth to occur.

Another analysis found that the dominance of Bitcoin, USDT, and USDC is inversely proportional to the global velocity of money. When the growth rate of the money supply exceeds GDP, asset bubbles form, and the dominance of Bitcoin declines; conversely, it rises.

It is recommended to closely monitor macroeconomic policies, changes in global M2, and their impact on asset prices, as well as to study market sentiment and capital flows to anticipate market changes in advance.

Intrerest Rate and Inflation Impact

Although Bitcoin is designed to be independent of monetary policy, it actually reacts significantly to central bank decisions, and this sensitivity evolves over time.

Research shows that before 2013, the Federal Reserve's loose monetary policy lowered Bitcoin prices, but afterwards, it pushed prices up, reflecting changes in market sentiment. The European Central Bank's deflationary policy has consistently suppressed Bitcoin prices.

Since 2016, the European Central Bank's policies have had a more lasting impact on Bitcoin. After 2020, Bitcoin's response to Federal Reserve announcements became more rapid and direct, with increased volatility, indicating a closer relationship with monetary policy.

Recent inflation data has shown that Bitcoin is more sensitive. When the U.S. inflation rate was announced at 0.0% in May, Bitcoin's price briefly rose but then fell back.

Conclusion

Bitcoin was initially seen as a tool against inflation, but empirical research results are mixed. Until 2019, Bitcoin's response to monetary policy was slow. However, after 2020, the tightening of Fed policy immediately triggered a drop in Bitcoin, indicating increased sensitivity.

Evidence suggests that the relationship between Bitcoin and inflation is complex and evolving, influenced by market maturity and the overall economic environment. The price of Bitcoin is closely related to global liquidity, driven by central bank policies, investor behavior, and institutional investment trends.

These findings suggest that Bitcoin demand initially stemmed from its use as a borderless digital currency rather than as an inflation hedge. After 2020, speculative factors and a broader investor base drove its closer correlation with macro policies.

For the upcoming CPI data, market expectations remain largely unchanged. If the actual results fall below expectations again, it may trigger market volatility. Investors should closely monitor these macroeconomic indicators and their potential impact on the Bitcoin market.