This article is also available in Spanish.
As Bitcoin (BTC) approaches the $70,000 mark, the cryptocurrency community is abuzz with predictions of a potential rise to $100,000, accompanied by a big altcoin season. Amid this enthusiasm, cryptocurrency analyst Axel Bitblaz said available Analysis on X, examining whether the necessary liquidity and catalysts are in place to push Bitcoin to such heights.
Bitblaze emphasizes the essential role of liquidity in the cryptocurrency market. He points to similarities with previous highs, saying: “Our entire industry is driven by one thing and one thing only, which is liquidity.” He points to the bull markets of 2016 and 2020, both of which were largely supported by increased liquidity. This time, the question is whether there are similar or larger liquidity events on the horizon to push the price of Bitcoin higher.
#1 Bitcoin’s rise is set to be fueled by stablecoins
The cornerstone of Bitblaze’s analysis is the current state of the stablecoin market. He describes stablecoins as “the gateway to the cryptocurrency industry,” emphasizing their indispensability in the cryptocurrency ecosystem. The total market capitalization of stablecoins has risen to $173 billion, reaching its highest level since the collapse of TerraUSD (UST).
Related reading
Tether (USDT) remains the dominant player, accounting for 69% of the total stablecoin market cap of $120 billion. Bitblaze highlights the historical relationship between BTC prices and USDT market capitalization, saying: “Between March 2020 and November 2021, USDT MCCap increased by 17 times while BTC price was pumped by 16.5 times.”
However, since March 2024, although the market capitalization of USDT continues to rise, the price of Bitcoin has remained relatively stagnant. “This suggests that there is a lot of liquidity waiting on the sidelines to enter Bitcoin and cryptocurrencies. I think they will start to spread soon, right?” says the analyst.
#2 Change the FASB rule
Another important factor is the impending change in accounting standards by the Financial Accounting Standards Board (FASB). Currently, publicly listed companies face challenges holding Bitcoin due to unfavorable accounting treatments.
Bitblaze explains: “Let’s say a company bought 100 BTC at $67,000 each. If BTC dropped to $60,000 and then pumped it up to $68,000, the company would still need to report that at $60,000… and would have to show it as a loss on Even though it makes money.” This results in misleading earnings reports and negatively impacts stock prices, discouraging companies from investing in Bitcoin despite its potential as an asset.
An upcoming Financial Accounting Standards Board (FASB) rule change, scheduled to be implemented in December 2024, is scheduled to address this issue. Under the new guidelines, companies will be able to report the fair value of their Bitcoin holdings based on market prices at the end of the reporting period. Bitblaze notes that this regulatory shift could incentivize more companies to adopt Bitcoin as part of their balance sheets.
Related reading
He cites MicroStrategy as a precedent, noting that since August 2020, the company has raised 252,220 bitcoins worth $17.4 billion, and is currently generating a profit of $7.4 billion. With S&P 500 companies collectively holding nearly $2.5 trillion in cash and cash equivalents — assets vulnerable to inflation — Bitcoin presents itself as an attractive, inflation-resistant alternative.
#3 Expand M2 money supply
Bitblaze also delves into the macroeconomic landscape, particularly the M2 money supply, which includes cash, current deposits, and other easily convertible nearby funds. Currently, the M2 money supply stands at $94 trillion, roughly 39 times the total cryptocurrency market capitalization.
Bitblaze cites an analysis suggesting that “for every 10% increase in M2 money supply, BTC pumps out 90%.” Although the M2 money supply is roughly 3% higher than its previous peak, Bitcoin has yet to surpass its 2021 highs, suggesting that abundant liquidity remains untapped.
“Currently, the M2 money supply is approximately 3% above its recent peak, while BTC is still below its 2021 high. With global interest rate cuts occurring alongside quantitative easing, fiat currencies will become an investment Worse. As Ray Dalio said, #cash is trash, #and now this huge cash supply will find its way into various asset classes, including cryptocurrencies, the analyst claims;
#4 Switching from Money Market Funds to Bitcoin
Since November 2021, money market funds have grown to $6.5 trillion as investors sought the safety of Treasuries amid rising interest rates. However, with the Fed cutting interest rates and signaling more to come, yields on Treasury bills are expected to diminish, which will likely cause a significant outflow from money market funds.
“This will cause a massive outflow from money market funds as the yield on Treasury bills will fall,” Bitblaze predicts, suggesting that investors will look for higher returns in riskier assets like Bitcoin and other cryptocurrencies. He refers to these digital assets as the “fastest horses” in the quantitative easing environment, and predicts that this shift could direct significant capital into cryptocurrency markets.
To measure the potential flow, Bitblaze aggregates the sources of available liquidity: the M2 money supply of $94 trillion, money market funds totaling $6.5 trillion, the cash holdings of S&P 500 companies amounting to $2.5 trillion, and the market cap of stablecoins of $173 billion. This brings the total to about $103.17 trillion, which is equivalent to 43 times the total current market value of cryptocurrencies.
He also addressed skeptics, concluding that “for a $200 billion inflow, only 0.19% of that account needs to go into cryptocurrencies. For those who think this is not possible and that $200 billion is too much, Bitcoin ETFs had something to do with it.” Over $20 billion in net flows despite sideways price movement, no interest rate cuts, and no quantitative easing.”
At press time, Bitcoin was trading at $66,944.
Featured image created with DALL.E, a chart from TradingView.com
Comments are closed, but trackbacks and pingbacks are open.