can global liquidity cause the price to fall again?

However, before preparing for the worst, it is important to remember that Bitcoin also has internal factors to counterbalance the negative impact of macroeconomic data.

Global liquidity falls over the past two months

According to The Kobeissi Letter, the price of Bitcoin has in the past shown a 10-week lag correlation with the global monetary supply (Global M2). Over the past two months, Global M2 has fallen by $4.1 trillion, signaling potential further declines in BTC if this trend continues.

As a reminder, Global M2 is a key economic indicator that measures the total supply of money in the global economy, including cash, demand deposits (M1), time deposits and other liquid assets. Fluctuations in Global M2 often have an impact, sometimes considerable, on stock markets like crypto.

“As the global money supply hit a new record high of $108.5 trillion in October, the price of Bitcoin hit an all-time high of $108,000. Over the past 2 months, however, the money supply fell by $4.1 trillion, to $104.4 trillion, its lowest level since August. If the relationship holds, this suggests that Bitcoin's price could fall as low as $20,000 in the coming weeks. » – predicted The Kobeissi Letter.

A month ago, Joe Consorti, head of growth at Bitcoin custody company Theya, warned of a possible 20% to 25% correction in Bitcoin's price based on similar indicators. This prediction now appears to be coming true.

André Dragosch, head of research at Bitwise, shares a similar vision. For his part, he expects the price of BTC to come under increased pressure due to tighter liquidity in the United States. However, he also highlights a factor specific to the little orange coin, which could counterbalance this liquidity pressure: the increase in the illiquid supply of Bitcoin.

Indeed, increased illiquid supply indicates greater scarcity of Bitcoin, which could potentially support its price under supply and demand dynamics.

“Bitcoin is currently balancing the outlook for a) increasing macroeconomic headwinds resulting from declining liquidity in the US and globally and b) on-chain tailwinds resulting from the large BTC supply gap. On-chain bullish factors will likely eventually outweigh bearish macroeconomic factors, but this will likely create some volatility in early 2025 (and possibly attractive buying opportunities). » – commented André Dragosch.

At the time of writing, Bitcoin is hovering around $94,000, having fallen nearly 6% over the weekend.

Moral of the story: Bitcoin does not only depend on its holders.