Analysts warn that global liquidity tightening, driven by a stronger U.S. dollar, may cause a short-term slowdown in Bitcoin prices. Long-term outlooks remain positive.
Impact of Liquidity Tightening on Bitcoin
According to a research note from Matrixport, tightening global liquidity could affect Bitcoin's performance. Crypto analyst Markus Thielen noted that historical trends indicate Bitcoin's price usually reacts approximately 13 weeks after changes in global liquidity. As liquidity conditions tighten, especially with weakening dollar-denominated liquidity, Bitcoin may experience a phase of integration.
Short and Long Term Prospects
Despite the anticipated short-term decline, Thielen remains optimistic about the overall outlook for Bitcoin and other risk assets. He pointed out that while traders may take a more cautious approach during this time, the long-term prospects for Bitcoin are still strong, indicating that the fundamentals supporting Bitcoin’s growth remain intact.
Arthur Hayes's Predictions
Arthur Hayes, the co-founder of BitMEX, predicted that Bitcoin would experience a rally that would peak in late March. In an essay published on January 7, Hayes attributed this potential surge to the Federal Reserve’s quantitative tightening (QT) and liquidity measures. The Federal Reserve plans to withdraw $180 billion through QT from January to March. However, adjustments to the Reverse Repo Program rate could lead to an injection of $237 billion, resulting in a net liquidity increase of $57 billion. Hayes suggests that these policies may positively impact risk assets like Bitcoin in early 2025.
While Bitcoin may face short-term challenges due to liquidity tightening, analysts maintain a positive outlook for its future as market conditions stabilize.
