Bitcoin's price is showing signs of a significant rally, fueled by the accelerating growth of global liquidity. According to experts such as Michael Howell and Raoul Pal, the liquidity explosion is what’s really pushing Bitcoin’s great performance. They still tease the idea of Bitcoin going back up to $100k+. This analysis details the complex dynamic between international monetary policies and the crypto market.
Decoding Global Liquidity Dynamics
According to Michael Howell, one of the world’s foremost experts in global liquidity, such movements tend to move in cycles of about five years. He identifies three critical factors currently influencing global liquidity: the US Federal Reserve, the People’s Bank of China (PBoC), and the lending activities of banks within collateral markets. Howell predicts the current liquidity cycle should climax near the middle of 2026. That might allow it to crawl up towards an index level of 70 or so.
Howell further draws attention to the deleterious effects of what he calls a “hidden tax” on people’s lives.
"If you're not earning more than 11%/yr, you're getting poorer by definition." - Michael Howell
This hidden tax of an 8% debasement of currency plus a 3% rate of global inflation. These conditions underscore the challenges involved in maintaining purchasing power in the current economy.
Bitcoin's Correlation with Liquidity
Pundit Raoul Pal, weighing in on the topic, points out the clear relationship between increasing liquidity and Bitcoin’s bull runs. He estimates that liquidity accounts for as much as 90% of Bitcoin's price movements and an even higher 97% of the Nasdaq's performance. According to some analysts, Bitcoin and global liquidity are almost perfectly correlated. They point out that Bitcoin’s price responses usually come with a ~3-month delay to changes in global liquidity. According to Michael Howell, these indirect influences, like the aforementioned impact on development, can take six to fifteen months to show up.
Raoul Pal’s analysis lends some support to that notion, as raising liquidity seems to be the biggest driver of asset prices.
"The likely inevitable policy response of ‘more liquidity’ is a great future omen. It establishes the upward path of persistent monetary inflation that ultimately underpins hedges such as gold, quality equities, prime residential real estate, and Bitcoin." - Raoul Pal
This view suggests that Bitcoin’s success is a foregone conclusion based on today’s monetary insanity. All these policies aim to destabilize or inject more liquidity into the global economy.
Market Outlook and Future Projections
This latest wave of global liquidity is said to be a product of a deteriorating global economy. As a result, there have been expectations of policy responses that would do even more to boost liquidity. By analyzing current data trends we can reasonably expect for global M2 and the BTC/USD pair to top out sometime around late 2025 and early 2026, respectively. Since 2012, it’s provided an average annual return of 130% and has outperformed the Nasdaq by more than 99%.
With Bitcoin looking to make a return to the $100,000 level, it marks out a price region that could see strong volatility. When you consider the global liquidity environment, liquidity-sucking monetary policy changes and the resulting market reaction, we have a strong outlook for Bitcoin.
