Many macroeconomic analysts claim that the stage appears set for Bitcoin to surpass its previous all-time high, thanks to increased global liquidity.
In recent weeks, the global macroeconomic outlook has shown signs of shifting. Over the weekend, Goldman Sachs economists announced that they Reduced They lowered their estimate of the probability of a US recession in 2025 from 25% to 20%.
This change came After the latest US retail sales and unemployment claims data, which indicated that the US economy may be in better shape than many had feared.
If the next August jobs report, due on September 6, continues this trend, the odds of a recession could drop back to their previous level of 15%, Goldman Sachs analysts added.
The possibility of such a development has raised confidence that the US Federal Reserve may cut interest rates as soon as September, perhaps by about 25 basis points.
The potential interest rate cuts are already beginning to weigh on markets, with U.S. stock indexes, including the S&P 500, Nasdaq Composite and Dow Jones Industrial Average, falling. registration Their biggest weekly gain this year came during the week ending August 16.
Along with this relatively positive news for the US economy, global liquidity has started to pick up. Historically, increased liquidity and easing recession fears have often been catalysts for bullish trends in the crypto space.
So, let’s take a closer look at what’s happening globally and how these macroeconomic shifts could impact Bitcoin (BTC) and the entire cryptocurrency market in the coming weeks and months.
Increased liquidity in global markets
To understand where BTC might be headed, we need to delve deeper into the mechanisms behind the current surge in liquidity and how it could impact the broader markets.
US liquidity flood
In the US, the Treasury Department appears ready to pump a massive amount of liquidity into the financial system. Arthur Hayes, co-founder of BitMEX and a well-known figure in the cryptocurrency industry, says: In a recent post on Medium, This surge in liquidity could push Bitcoin past its all-time high of $73,700. But why now?
One possible explanation for this is the upcoming presidential election. Keeping the economy strong is crucial, and this liquidity injection may be a way to ensure favorable conditions as the election approaches.
But how exactly will this liquidity be injected? The US Treasury and the Federal Reserve have several powerful tools at their disposal, Hayes explains in his analysis.
First, there is the overnight reverse repurchase agreement, or RRP, mechanism, which currently has a balance of Standing at $333 billion as of August 19, down significantly from its peak of more than $2.5 trillion in December 2022.
Hayes explains that the asset repurchase program should be thought of as a large pool of “sterile money” on the Fed’s balance sheet that the Treasury apparently seeks to “inject into the real economy”—or add liquidity. The asset repurchase program represents the amount of securities that the Fed has sold with an agreement to buy back in the future. In the process, the institutional buyers—or money market funds, more precisely—earn interest on their cash overnight.
As Hayes points out, the decline in the overnight deposit rate over the past year suggests that money market funds are moving their money into short-term Treasuries instead of into the deposit rate, where Treasuries earn slightly higher interest. As Hayes notes, Treasuries “can be leveraged unexpectedly, and will generate growth in credit and asset prices.” In other words, money is moving off the Fed’s balance sheet, adding liquidity to the markets.
The Treasury also recently announced plans to issue another $271 billion in Treasury bonds before the end of December, Hayes noted.
But that’s not all. The Treasury can also tap its general account, the government’s current account. This account holds $750 billion, which it can release into the market under the guise of avoiding a government shutdown or other financial need. The general account can be used to finance purchases of debt other than Treasury bonds. As Hayes explains, “If the Treasury increases the supply of Treasuries and decreases the supply of other types of debt, that adds liquidity.”
If these two strategies are used, as Hayes claims, we could see between $301 billion (from the Asset Rehabilitation Program) to $1 trillion injected into the financial system before the end of the year.
Now, why is this important for Bitcoin? Historically, Bitcoin has shown a strong correlation to periods of increased liquidity.
When more money flows into the economy, investors tend to take on more risk. Given Bitcoin’s status as a risky asset — and its limited supply — Hayes argues that increased liquidity means we’re likely to see a bull market by the end of the year.
If the US continues to pump liquidity, we could see a strong rally in the price of Bitcoin as investors flock to the cryptocurrency market in search of higher returns.
Liquidity movements in China
While the United States is stepping up its efforts to provide liquidity, China is also taking steps — albeit for different reasons.
According to a recent discussion thread published by macroeconomic analyst Thomas on Markets, the Chinese economy is showing signs of stress, with recent data showing the first contraction in bank loans in 19 years. This is important because it suggests that China’s economic engine, which has been one of the world’s main growth engines, is slowing down.
To counter these pressures, the People’s Bank of China has quietly been increasing its liquidity injections. Over the past month alone, the PBOC has pumped $97 billion into the economy, primarily through reverse repos.
Although these injections are still relatively small compared to what we have seen in the past, they are crucial at a time when the Chinese economy stands at a crossroads.
But there is more at stake here. According to the analyst, the top leadership of the Chinese Communist Party has pledged to implement additional policy measures to support the economy.
These measures could include more aggressive liquidity injections, which would further boost the money supply and stabilize the Chinese economy.
Over the past few weeks, the yuan has strengthened against the US dollar, which could give the People’s Bank of China more room to maneuver and implement additional stimulus without triggering inflationary pressures.
The Big Picture of Global Liquidity
What is particularly interesting about these movements in liquidity is that they do not appear to occur in isolation from each other.
Jamie Coates, chief crypto analyst at RealVision, noted that in the past month, central banks, including the Bank of Japan, have pumped massive amounts into the global monetary base, with the Bank of Japan alone adding $400 billion.
When you combine the $97 billion from the People’s Bank of China with the broader $1.2 trillion expansion in the global money supply, there appears to be a coordinated effort to inject liquidity into the global economy.
One factor supporting this idea of coordination is the recent decline in the value of the US dollar. The weakness of the dollar suggests that the Fed may be tacitly in agreement with these liquidity measures, allowing for a more coordinated approach to boosting the global economy.
Jamie added that if we compare it to previous cycles, the potential for Bitcoin to rise in value is very high. In 2017, during a similar period of liquidity expansion, Bitcoin’s value rose 19 times. In 2020, it rose 6 times.
While history is unlikely to repeat itself exactly, the analyst claims there is a strong case for Bitcoin to increase in value by 2-3x during this cycle – provided the global money supply continues to expand, and the US Dollar Index (DXY) drops below 101.
Where could Bitcoin price go?
On August 5, Bitcoin and other crypto assets suffered a sharp decline due to a market crash triggered by rising recession fears and a sudden unwinding of the yen carry trade. The impact was severe, with Bitcoin falling to $49,000 and struggling to recover.
As of August 19, Bitcoin is trading at $59,000, facing strong resistance between $60,000 and $62,000. The main question now is: Where does Bitcoin go from here?
According to Hayes, for Bitcoin to truly enter its next bullish phase, it needs to break $70,000, with Ethereum (ETH) crossing $4,000. Hayes remains optimistic, stating, “The next stop for Bitcoin is $100,000.”
He believes that as Bitcoin’s price rises, other major crypto assets will follow suit. Hayes specifically mentioned Solana (SOL), predicting it will rise 75% to $250, just shy of its all-time high.
This view is supported by Francesco Madonna, CEO of BitVaulty, who also sees the current market environment as a prelude to an extraordinary bullish phase.
Madonna highlighted a pattern he has observed over the past decade: During periods of uncertainty or immediate liquidity injections, gold typically moves first because of its safe-haven status.
Recently, gold hit an all-time high, which Madonna interpreted as a key indicator that the bull market for risky assets, including Bitcoin, is just beginning.
Madonna points out that after gold peaks, the Nasdaq and Bitcoin usually follow, especially as liquidity stabilizes and investors start looking for higher returns in growth assets.
With gold already at an all-time high, Madonna believes Bitcoin’s recent stabilization around $60,000 could be the calm before the storm, with $74,000 just an “appetizer” and $250,000 within reach.
like Coats As noted in a recent post on X, an expansion of the money supply is a condition of a credit-based fractional reserve system like ours.
Without this expansion, the system risks collapse. The analyst argues that this “natural state” of perpetual growth in the money supply could be the catalyst that propels Bitcoin, along with other growth and risk assets, into its next major bull market.
As the US, China and other major economies pump liquidity into the system, we are likely to see increased demand for Bitcoin as investors look for assets that can outperform traditional investments.
If these liquidity measures continue as expected, Bitcoin could be on the cusp of another major rally, with the potential to break its all-time high and set new records.
Disclosure: This article does not constitute investment advice. The content and materials on this page are for educational purposes only.