Liquidity's Grip On Crypto: How Central Bank Policies Are Reshaping Bitcoin's Fate

Bloomberg Intelligence analyst Jamie Coutts has offered a compelling perspective on the future of the cryptocurrency market, emphasizing its close ties with broader economic trends, outlining how central bank liquidity and the global money supply (M2) are intricately linked to the dynamics of the cryptocurrency market, particularly Bitcoin BTC/USD.

Coutts pointed out that the liquidity cycle, which reached its nadir in the fourth quarter of 2022, plays a crucial role in determining the rate of blockchain adoption.

Despite the volatility in crypto asset prices, he observed a consistent year-over-year increase in blockchain technology adoption.

This trend, according to Coutts, marks the beginning of a long-term structural uptrend for cryptocurrencies.

Its all linked -- Central Bank liquidity-> Global M2-> Bitcoin Price-> Crypto Prices-> Crypto Users

The liquidity cycle bottomed in Q4 2022 as did users of smart contract blockchains. However, the liquidity cycle only impacts the rate-of-change of adoption. Consistently,… pic.twitter.com/mfQayiHpJ0

— Jamie Coutts CMT (@Jamie1Coutts) November 19, 2023

A significant highlight of Coutts' analysis is the evolving role of Bitcoin as a reserve asset at the sovereign level.

He noted that several energy-rich countries have made substantial investments in Bitcoin mining facilities.

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These investments, ranging from $1 billion to $2 billion and powering over 2000MW, are not merely economic decisions but strategic energy initiatives.

Coutts suggested that these countries might already be incorporating Bitcoin into their national balance sheets, a move that underscores Bitcoin's growing importance in the global financial landscape.

#Bitcoin is already a reserve asset at the sovereign level.

Several energy-rich nation-states have invested hundreds of millions into facilities with projected investments of $1b-$2b & >2000MW coming online in the couple of years. These countries have publicly stated that… pic.twitter.com/AgSKjEd3Dx

— Jamie Coutts CMT (@Jamie1Coutts) November 19, 2023

In a parallel development, a Bitfinex report analyzed the current state and prospects of Bitcoin.

The report highlighted a substantial increase in Bitcoin's value, rising over 120% this year. It advised investors to be cautious despite this positive trend. This surge is occurring in the context of the upcoming fourth Bitcoin halving in April 2024, which is leading to a noticeable tightening in the supply of Bitcoin.

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