The relationship between Bitcoin price fluctuations and Global Liquidity is a crucial factor that many investors may overlook. While on-chain metrics and technical indicators are commonly used to analyze Bitcoin’s price action, understanding how Global Liquidity impacts BTC’s cyclical trends is essential for traders and long-term investors.
Global M2 money supply, which includes cash, checking deposits, and near-money assets, plays a significant role in driving capital towards higher-yielding assets like Bitcoin, equities, and commodities. When Global M2 expands, liquidity increases, leading to a rise in risk asset prices. Conversely, when M2 contracts, risk assets tend to decline as liquidity tightens.
Historically, Bitcoin’s price has followed Global M2 expansion, with price increases during periods of liquidity expansion and declines during contractions. However, in the current cycle, there has been a deviation from this pattern, as Bitcoin’s price action has shown inconsistencies despite a steady increase in Global M2.
Analyzing the year-on-year rate of change in Global M2 provides a more insightful approach to understanding its impact on Bitcoin’s performance. Strong bull runs in Bitcoin align with periods of rapid liquidity expansion, while contractions precede price declines or consolidation phases.
Research suggests that Bitcoin lags behind Global Liquidity changes by approximately 10 weeks. By adjusting the Global Liquidity indicator forward by 10 weeks, the correlation with Bitcoin strengthens. However, the most accurate lag time is around 56 to 60 days, or approximately two months.
Throughout 2025, Global Liquidity has been in a flattening phase following a significant expansion in late 2024. This flattening coincided with Bitcoin’s consolidation and retracement to around $80,000. However, a recent resurgence in liquidity growth suggests that Bitcoin could see another leg up by late March.
Monitoring Global Liquidity is crucial for anticipating Bitcoin’s trajectory, with a focus on the rate of change and understanding the lag effect providing a more precise predictive framework. As global economic conditions evolve and central banks adjust their monetary policies, Bitcoin’s price action will continue to be influenced by liquidity trends.
In conclusion, understanding the impact of Global Liquidity on Bitcoin’s price action is essential for investors. By analyzing liquidity trends and their relationship with Bitcoin’s performance, investors can make more informed decisions about their investments.