# Bitcoin Price Drops 30% from Peak, Entering ‘Extreme Fear’ Territory; Global Liquidity Trends Offer Positive Signals

The price of Bitcoin has plummeted 30% from its cycle peak, plunging market sentiment into a state of ‘extreme fear.’ However, global liquidity trends are providing positive signals amid the market fluctuations. In the current economic environment, money supply plays a significant role in asset price formation. Particularly for Bitcoin, its long-term correlation with global liquidity stands at an impressive 0.94. Here’s why experts forecast a Bitcoin rally by 2025 based on liquidity.

# What is Global Liquidity?

Global liquidity refers to the availability of funds and credit across the international financial system. It directly impacts capital flows, investments, and asset prices. Major central banks, such as the Federal Reserve (Fed), European Central Bank (ECB), People’s Bank of China (PBoC), and Bank of Japan (BoJ), regulate it through interest rates and monetary policies.

A prominent indicator of global liquidity is the global M2. This measure includes cash, checking and savings deposits, money market accounts, and small-denomination time deposits under $100,000, all denominated in dollars. It reflects the total amount of funds globally available for consumption, investment, and lending, and serves as a useful metric for gauging the speed of money supply and credit creation by central banks.

# Asset Classes’ Different Responses to Global M2: Stocks > Gold > Bonds

When liquidity is abundant, investors are willing to take on risk and allocate funds to assets with higher expected returns. Conversely, a contraction in liquidity leads to a shift towards safer assets. This is why stocks tend to perform well when liquidity increases. Since the 2008 financial crisis, the S&P 500 has shown a close correlation with global liquidity.

However, stock prices are determined by multiple factors beyond liquidity, such as corporate earnings, dividends, and pension fund inflows. For U.S. stocks, structural capital inflows through retirement accounts like 401(k)s make them less sensitive to liquidity changes. Gold, while it performs well with increased liquidity and a weaker dollar, also serves as a safe-haven asset. Bonds, too, are influenced by interest rates, economic growth rates, and risk aversion, making their correlation with liquidity more complex.

# Bitcoin’s Strong Correlation with Global Liquidity: 0.94

Unlike traditional assets like stocks, gold, or bonds, Bitcoin shows a relatively pure correlation with liquidity. It acts almost as a mirror reflecting global currency issuance and the relative strength of the dollar. Research by Lyn Alden and Sam Callahan indicates that from May 2013 to July 2024, the correlation coefficient between Bitcoin prices and global liquidity (M2) was 0.94. This suggests Bitcoin is highly sensitive to liquidity changes.

# Bitcoin More Sensitive to M2 than Halving Cycles

Mike Wilson, chief U.S. equity strategist at Morgan Stanley, analyzed that Bitcoin prices react more sensitively to global liquidity than to halving cycles. According to their report, significant increases in global M2 coincided with Bitcoin reaching its peaks just before 2017 and immediately after 2021. This implies that liquidity supply has been a major driver of Bitcoin price increases.

Notably, the monthly growth rate of global M2 had a profound impact on Bitcoin prices. Analyzing data from November 2011 to February 2022, it was found that Bitcoin’s average monthly rise was 3% higher when M2 accelerated. Conversely, when M2 decelerated, the increase rate significantly dropped. This indicates that monthly growth rates of M2 have a more substantial impact on Bitcoin prices than annual growth rates.

Further analysis suggests there is about a ten-week (70-day) lag between changes in global liquidity and their impact on Bitcoin prices. This means that liquidity changes do not immediately reflect in Bitcoin prices but take a certain period to manifest.

# Why 2025 Could Witness a Significant Bitcoin Rally

As of early 2025, global M2 has increased from $102 trillion to $107 trillion, marking a 3.8% rise. Historical data suggests that significant changes in liquidity take around sixty to seventy days to affect Bitcoin prices, implying Bitcoin might bottom out around April.

Moreover, major economies, including the U.S. and China, are poised to supply increased liquidity for economic stimulus. The U.S. raised its debt ceiling by $4 trillion on February 25, forecasting substantial liquidity injection. China plans to issue ultra-long-term special bonds worth up to $179 billion, along with an additional $69 billion in special bonds, to support banks.

In the Eurozone, the ECB’s interest rate cuts and Germany’s consideration of ‘debt limit’ reforms hint at potential expenditures exceeding $1 trillion in defense and infrastructure. Experts believe this major liquidity expansion could positively impact risk assets like Bitcoin.

# Could Bitcoin Become ‘Gold on Steroids’?

Wall Street veteran investor Raoul Pal anticipates an expansion of global M2 money supply, suggesting a strong Bitcoin rebound is possible. Pal notes that recent M2 supply charts resemble those from 2016-2017. He reassures investors not to panic over recent market fluctuations, predicting that global liquidity expansion will ultimately drive Bitcoin’s recovery. Should this pattern repeat, Bitcoin might rebound after falling to $70,000.

Chris Kuiper, Director of Research at Fidelity Digital Assets, compares the U.S. economic situation to the stagflation of the 1970s. Fidelity’s report posits that Bitcoin could behave like ‘gold on steroids’ in such an environment. Historical precedents from 1977-1980 saw significant rises in both gold and the Consumer Price Index (CPI), indicating that Bitcoin might experience a similar price surge.

The consensus among experts is that global liquidity expansion is likely to positively influence Bitcoin prices. However, inflationary pressures and global economic uncertainties resulting from increased liquidity remain major risks. Therefore, investors should carefully assess global liquidity indicators and Bitcoin’s intrinsic value to formulate prudent investment strategies.