- Bitcoin saw a price boost this week, surpassing $65K. The upswing is driven by a broader stock market rally influenced by positive US jobs data and China’s economic stimulus measures.
- Bitcoin’s strong long-term correlation with global liquidity often results in considerable price impact, as it tends to rise when liquidity expands.
- It’s expected that China’s liquidity measures, coupled with US economic and labour data, could lead to a sustained Bitcoin rally.
Crypto reminds us that it’s important to touch grass once in a while because this industry can drive you crazy. So, Bitcoin (BTC) surged past US$65K (AU$94.5K), an increase of over 3% in the last 24 hours.
At the beginning of September, around three weeks ago, BTC was trading below US$53K (AU$77K), and crypto bros were considering applying to McDonald’s once again.
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Behind this upswing is the broader stock market rally, which was influenced by positive US jobs data and China’s promise of economic stimulus.
As Crypto News Australia reported, China is trying to stimulate its economy by cutting interest rates, increasing bank liquidity, offering housing incentives, and creating a stock stabilisation fund. These policies aim to combat deflation caused by a series of complex economic factors, beginning with a real estate recession.
The efforts start with the People’s Bank of China (PBOC) cutting 50 basis points in the reserve requirement ratio for commercial banks effective September 27 of this year. The move is expected to inject over 1 trillion yuan, or over US$140B (AU$203B).
While Chinese authorities didn’t reverse their crypto policies, the nation has witnessed unprecedented inflows in its over-the-counter (OTC) crypto market, accruing over US$75B (AU$108B) in the first three quarters of 2024.
Pump Incoming?
There have been past instances where leading economic interventions coincided with significant BTC rallies. A good example is the COVID-19 pandemic, during which nearly every nation in the world had to intervene economy-wise, which consequently led to more retailers and institutions turning to crypto as a hedge against inflation.
There’s also a strong correlation between BTC and the global liquidity market in larger timeframes. The correlation is about 0.94 from May 2023 to July 2024, outshining all other major assets like gold and stocks, according to a report by macroeconomic analyst and investor Lyn Alden.
Global liquidity is often measured by using monetary aggregates like the M2 Money Supply, credit measures, etc. However, that correlation is notably lower on shorter timeframes, around 0.36 on a six-month basis, suggesting that short-term price movements are derived from crypto-specific factors, the analyst noted.
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Without getting too technical, this strong correlation between Bitcoin and global liquidity means that the father of all cryptocurrencies generally rises when liquidity expands. In other words, market observers and crypto analysts believe that China’s attempt to open the liquidity gates could benefit BTC long term.
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