Key Takeaways

• Raoul Pal suggests that Bitcoin prices are significantly influenced by global liquidity growth, which may account for as much as 90% of price fluctuations.

• Over the long term, global liquidity tends to increase, largely due to rising debt in various countries.

• In the short term, global liquidity follows a cyclical pattern, with Michael Howell predicting a peak around mid-2026.

Bitcoin (BTC) prices are highly responsive to shifts in global liquidity. Some analysts note almost a perfect correlation over a three-month period. This relationship adds to the optimistic outlook as BTC surges past $100,000, but the question remains: how long can this upward trend last?

Liquidity: The Quiet Force Behind Bitcoin Prices

Raoul Pal, who leads Global Macro Investor, recently emphasized the strong link between Bitcoin and global M2 liquidity. His insights, shared by Paul Guerra, suggest that:

Pal believes that liquidity expansion drives nearly 90% of Bitcoin’s price movements and 97% of NASDAQ activity. A chart comparing Global M2 with Bitcoin reflects an almost eerie consistency.

Pal also discusses personal financial circumstances, highlighting a kind of “hidden tax” of 11%—comprising an 8% currency depreciation and 3% global inflation. He asserts:

“If you’re not making more than 11%, you’re, by definition, poor.”

Since 2012, Bitcoin has delivered an average annual return of 130%, despite fluctuations, proving to be one of the most asymmetric investment strategies in recent years—outperforming NASDAQ by over 99%.

Drivers of Global Liquidity

At its essence, global liquidity is shaped by the growth of the money supply. Independent investor Lynn Alden explains:

“The fiat currency system largely hinges on increasing debt levels, which is why the money supply is always expanding across nations.”

This offers a macro view of global liquidity, suggesting its long-term growth is systemic. However, this increase isn’t uniform and often varies due to short-term factors. According to Michael Howell, author of “The War of Capital,” the primary forces currently affecting liquidity are the US Federal Reserve, the People’s Bank of China, and the banking market.

Howell also notes that there are indirect factors that influence liquidity with a time lag of 6 to 15 months, such as global business cycles and oil prices. Generally, a sluggish global economy tends to boost liquidity, whereas rising bond market volatility can constrain it.

The Future of Global Liquidity

Howell anticipates that global liquidity operates on roughly five-year cycles, currently approaching a peak. By mid-2026, he predicts it will reach an index level of around 70, lower than the post-COVID peak of 90—potentially signaling a future recession.

Recent increases in global liquidity are linked to a weakening global economy, possibly prompting further easing from central banks. The People’s Bank of China has already begun injecting liquidity, while the Federal Reserve faces tough decisions balancing inflation control with a vulnerable financial landscape. Although interest rates held steady in the most recent meeting, pressure on Chairman Jerome Powell is mounting.

Economic uncertainty is affecting US Treasury yields and causing bond market volatility. Over time, these challenges could hinder liquidity growth. Compounded by fears of a recession, there may be reduced appetite for risk among investors, leading to further tightening in liquidity.

Nonetheless, even if a recession occurs before 2026, there appears to be room for liquidity to operate through at least 2025—an important factor for Bitcoin.

Howell observes:

“The expected policy reaction of ‘more liquidity’ heralds a future trend, establishing a sustained upward path for financial inflation that supports investments in gold, quality stocks, prime real estate, and Bitcoin.”

Interestingly, Howell’s liquidity cycle aligns closely with Bitcoin’s halving cycle, with both suggesting a potential peak around the end of 2025 into early 2026. This synchronicity could set the stage for significant price shifts.

This article does not provide investment advice or recommendations. All investment activities involve risks, and readers should conduct their own research before making any decisions.