This article examines the impact of global liquidity on financial markets and Bitcoin prices. It particularly highlights the role of stablecoins as indicators of short-term market changes.
Global M2 and Bitcoin Dynamics
The global M2 measure, which includes cash and easily liquidated assets, plays an important role in determining Bitcoin prices. Data shows that the rise in M2 in 2020 coincided with a significant increase in Bitcoin prices, while previous cycles also demonstrated similar correlations with price movements.
Strong Correlation and Timing
Analyzing year-on-year changes in M2 indicates a clearer connection with Bitcoin prices. However, the delay in updating M2 data affects timing, as liquidity initially moves toward traditional assets, followed by stocks, and finally more volatile assets. This dynamic complicates short-term trend predictions.
The Role of Stablecoins as Indicators
Compared to the slow updates of M2, changes in the supply of stablecoins, such as USDT, USDC, and DAI, demonstrate faster and more sensitive reactions to Bitcoin prices. Increases or decreases in stablecoin supply can signal significant short-term price movements for Bitcoin. Specifically, 28-day changes in stablecoin supply accurately reflect current liquidity trends and can predict upward and downward cycles.
The research indicates that while global M2 offers a long-term view, stablecoins serve as practical indicators for quickly responding to liquidity changes. However, it is advisable to conduct thorough analysis before acting solely on this data.
