Ecoinometrics - Bitcoin, growth and liquidity. How are they working together?
Macro Liquidity Report, July 2023
Go back six years in the past and Bitcoin was a small niche asset mostly uncorrelated to the rest of the financial markets.
Fast forward to today and its market size is that of a mega cap stock with financial institutions fighting over the potential to capture even more of the global wealth with some ETF.
With that it is more likely than ever that Bitcoin is going to be strongly influenced by the global macro conditions in the future.
That’s what we want to understand with our new monthly macro liquidity report:
What are the macro conditions that matter for Bitcoin.
How do they influence the big price trends, volatility and so on.
How can we track those macro conditions and try to predict where they’ll be going next.
Lots of things to cover and we’ll do that over time. Today let’s start with the high level view and some basic tools.
Let’s dive in.
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Macro Liquidity Report, July 2023
The takeaway
If you want to make an educated guess about the weather it helps to know what season you are in. It is far less likely you’ll get hit by a snowstorm if you are in the middle of summer.
If you want to make an educated guess about where Bitcoin will be in six months, it helps to know how much cash is floating around at the macro level. This is why we are focusing on macro liquidity conditions.
Based on the current monetary policies of the major central banks and the trends in GDP and employment in the major economies we can tell that:
The global liquidity is strongly contracted.
The global growth is hanging by a thread.
If this trend continues Bitcoin will be in challenging conditions to continue its bear market recovery. Or at least it won’t be living in conditions that would allow for any explosive growth.
But the good thing is that there is light at the end of the tunnel. If global growth starts moving in contraction territory central banks will start pumping up the global liquidity which would ultimately create a reversal.
That’s months away for the US and EU but China has already started to take steps in this direction.
From a strategic perspective that means get ready to deploy cash on solid opportunities (scooping up cheap Bitcoins, investing in Bitcoin miners for asymmetric returns or park some cash in digital art for the brave souls) if the economic situation ends up degrading towards the end of the year.
Now Bitcoin doesn’t have a very long history as a global financial asset. So most of this analysis is based on educated guesses more than hard data.
So let’s talk about our thought process first.
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