Despite global liquidity reaching an all-time high, Bitcoin's upward trajectory remains stagnant, prompting questions about the underlying causes.
Markets on Edge as the Fed Meeting Looms
Markets are facing heightened uncertainty as the Federal Reserve's March 18-19 meeting approaches. Economic conditions remain volatile with persistent inflation and the potential for tariffs from President Trump adding to concerns. Despite these challenges, the Federal Reserve is expected to keep interest rates unchanged at 4.25-4.5%. Investors are focusing on the timing of the first rate cut, possibly in June 2025, which could see a drop in the rate to 4-4.25%. This has resulted in sharp market downturns, including an 8% drop for the S&P 500, and Bitcoin remains at around $82,300 as of March 18.
Rising M2 Liquidity
Global M2 money supply has reached $108.2 trillion, marking a 3.5% increase since January 2025. Historically, rising M2 liquidity leads to rallies in risk assets, including Bitcoin. However, Bitcoin's price action hasn't mirrored this increase, suggesting a possible delayed reaction typical in liquidity cycles. Research indicates an approximate 10-week lag before Bitcoin prices fully adjust to changes in M2 growth, highlighting a strong historical correlation.
Quantitative Tightening Could be Nearing Its End
The Federal Reserve's quantitative tightening program, ongoing since June 2022, may soon conclude. As of March 18, market participants on platforms like Polymarket are suggesting a 100% probability that QT will end by the end of April. Ending QT could lead to increased demand for risk assets like Bitcoin, although some analysts caution that the Fed may slow rather than stop asset wind-downs.
Although global liquidity is increasing and the Fed may ease its policies, Bitcoin's short-term movement remains uncertain. Historical data suggests delayed asset responses, and institutional developments could also influence Bitcoin's future market behavior.
