Analysis of the Impact of Global Macroeconomic Factors on the Bitcoin Bull Run

This article will explore how key macroeconomic factors such as global liquidity, interest rates, inflation, and Federal Reserve announcements impact the price performance of Bitcoin during a bull run. We utilize historical data from 2014 to the present, employing statistical and econometric analysis to identify trends and correlations, aiming to provide insights for investment strategies.

Global Market Liquidity

Liquidity is an important indicator of the availability of cash and easily tradable assets, and it is crucial for economic health. An increase in liquidity drives up asset prices and promotes active trading. Understanding liquidity trends helps investors seize market opportunities and make informed decisions to maximize returns.

Common liquidity indicators include:

• Money Market Fund: Reflects the available liquidity in the financial system.
• Bank reserves: Indicate the liquidity available in the banking system for loans and investments.
• Liquidity coverage ratio: A regulatory standard that measures the liquidity health of banks.
• Turnover rate: reflects the overall liquidity level of the market

This article mainly uses the M2 money supply as the measurement standard. M2 includes physical currency, checking accounts, savings accounts, and other near-money assets, which helps to understand the overall liquidity in the economy and the amount of funds available for spending and investment.

Historical data shows that the global M2 growth peak often coincides with the Bitcoin bull run. The volatility trend of Bitcoin is consistent with the changes in M2 momentum. During a bull run, monitoring M2 is particularly important, as increased liquidity usually drives the market up.

Several significant bull runs in the history of cryptocurrency include:

1. 2011-2013: During the European financial crisis, Bitcoin rose from $2.93 to $329.
2. 2015-2017: Bitcoin rose from $200 to $19,000, gaining mainstream attention.
3. 2020-2021: Under the pandemic stimulus measures, Bitcoin rose from $10,000 to $64,000.
4. 2024: Despite overall liquidity tightening, Bitcoin still rises from $25,000 to a new high of $85,000.

It is worth noting that in 2024, Bitcoin reached a new high without a significant increase in liquidity, indicating that the market is becoming increasingly mature. Meanwhile, the performance of altcoins is still closely related to overall liquidity.

Analysis shows that the dominance of BTC, USDT, and USDC is inversely proportional to the global money velocity. When the money supply grows faster than GDP, financialization increases, leading to asset bubbles and lower Bitcoin dominance. Conversely, the opposite is true.

Investors are advised to closely monitor macroeconomic policies, track changes in global M2 money supply and its impact on asset prices, and study changes in market sentiment to predict and position market trends in advance.

Interest Rates and Inflation

Although Bitcoin is designed as a decentralized asset, research shows that its sensitivity to central bank decisions evolves over time.

Before 2013, the monetary shocks from the Federal Reserve significantly lowered Bitcoin prices. After 2013, these shocks began to drive Bitcoin prices up, reflecting a shift in market sentiment. The European Central Bank's de-inflationary shocks have continuously lowered Bitcoin prices, indicating that Bitcoin has digital gold properties in Europe.

Since 2016, the impact of the European Central Bank's shocks on Bitcoin prices has been more lasting. After 2020, Bitcoin's response to Federal Reserve announcements has become more rapid and intense, indicating an increased correlation with monetary policy decisions.

Recently, when the CPI was announced, Bitcoin's price showed an immediate response to the inflation data. For example, when the U.S. inflation rate was 0.0% in May, Bitcoin's price rose immediately but then fell again due to the Federal Reserve's attempts to curb liquidity expectations.

Conclusion

The effectiveness of Bitcoin as a hedge against inflation remains controversial. In the early days, the price of Bitcoin did not react significantly to monetary policy announcements. However, since 2020, its sensitivity to central bank actions has significantly increased, responding more rapidly.

Evidence suggests that the relationship between Bitcoin and inflation is complex and evolving, influenced by market maturity and the overall economic environment. The price dynamics of Bitcoin are closely related to global liquidity conditions, driven by central bank policies, investor behavior, and institutional investment trends.

These findings suggest that the initial demand for Bitcoin stems more from its attributes as a borderless, decentralized digital cash rather than as an inflation hedge. After 2020, the Federal Reserve's tightening led to a significant drop in Bitcoin prices, highlighting speculative motives as well as a broader investor base and general acceptance.

The upcoming CPI data is expected to show no significant changes. If the actual results are lower than expected, it may impact the market. Investors should closely monitor relevant economic indicators and policy trends, and cautiously assess the investment value of Bitcoin in the current macro environment.