Bitcoin, Ethereum Prices Could Rally Thanks To Central Bank Liquidity Injections, Says Macro Analyst

Bitcoin investor Preston Pysh and macro researcher Luke Gromen recently explored how central banks’ maneuvers to manage liquidity are impacting financial and crypto markets.

What Happened: In a discussion titled “Macro Outlook Q2,” Pysh and Gromen highlighted a significant issue: long-term Treasury bonds are in a bubble, driven by retail and banks flooding into them “for the last 3-5 years,” according to Gromen.

He pointed to this as a classic bubble signal. They also explored how current liquidity injections are not labeled as quantitative easing (QE) but have similar effects. Gromen argued that these measures could weaken the dollar, boost economic growth and cap Treasury yields.

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Why It Matters: These points have substantial implications for crypto investors:

1. Inflation and Liquidity Management:
   Despite the Fed not labeling it as QE, they are effectively injecting liquidity into the economy. “It’s not QE, but the markets react similarly,” Gromen pointed out. The liquidity boosts assets, including Bitcoin BTC/USD and Ethereum ETH/USD, as investors seek returns in less inflation-sensitive investments.
2. Dollar Weakness:
   Gromen pointed out the dollar’s recent weakening trend. “We’ve seen the DXY Index drop about 2.4% since April,” he said. A weaker dollar often encourages investors to look at alternative assets like cryptocurrencies for better returns.
3. Political and Economic Strategies:
   The podcast discussed how political and financial institutions are navigating the high supply of Treasuries. Gromen emphasized, “They’re not going to let yields go over 5%.” This strategy implies continued liquidity support, which can drive crypto prices higher.
4. Future Liquidity Injections:
   The experts discussed potential future steps, including Freddie Mac’s proposal to guarantee second mortgages, potentially injecting significant liquidity into the consumer market. “This could inject up to $1.8 trillion in liquidity,” Gromen remarked, indicating further boosts for assets like crypto.

For crypto investors, the key takeaway is that persistent liquidity injections and a weakening dollar could create a favorable environment for cryptocurrencies.

What's Next: The influence of Bitcoin as an institutional asset class is expected to be thoroughly explored at Benzinga's upcoming Future of Digital Assets event on Nov. 19.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image created using artificial intelligence with Midjourney.