🔥The future market trend of BTC not only depends on The Federal Reserve (FED), but there is another important data point👇

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After a week of ups and downs in tariff frictions, the market finally had some respite over the weekend, but it is impossible to determine how long this respite will last, because the tariff issue is an eventual contingency that leads to a risk aversion of funds and a temporary collapse of sentiment, so the volatility will also be very large. However, once the market acknowledges the fundamental change and the release of risk aversion brought about by the tariffs, the entire financial market can find a new equilibrium from this, which is why global equity markets, especially US equities, ended the week with a positive end on Friday, as we can see from the changes in the S&P 500 volatility index.
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🔥It can be seen that last week the VIX index reached a recent high, and the only comparable events in the past few years were the extreme incident of the Bank of Japan raising interest rates last year and the financial turmoil caused by the pandemic in 2020. This is also why the market experienced such large fluctuations in the past week, as it is indeed rare in history. So, when this huge volatility comes to a pause, the factors affecting the Crypto market will return to the old topics of "inflation" and "interest rate cuts," because only interest rate cuts can bring about "flooding the banks" and provide growth hopes for risk assets led by BTC. By comparing the global broad money supply (M2) over the past 10 years with the trend of BTC, we can analyze this correlation. The chart below clearly shows that the significant increase in BTC over the past 10 years is built on the explosive growth of global M2, and this correlation far exceeds that of other financial data.
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🔥 This is why BTC will always fluctuate whenever the United States wants to release data related to inflation or interest rate cuts, because it ultimately affects whether new funds can enter the Crypto space. But at present, it seems that most people in the crypto market are only focusing on the Fed's path of interest rate cuts, and ignore another data worth paying attention to - PBOC asset size, that is, the asset size of the central bank, which reflects the current liquidity situation of China's currency. While everyone is looking at the West Coast financial markets, we are ignoring our own financial liquidity, which is also closely related to the rise and fall of BTC, after all, we are one of the largest countries in the world. The chart below shows the change between BTC's growth in the past 3 cycles and the growth of PBOC's asset size, and you can see that this correlation fluctuation runs through almost every BTC rally, and it also corresponds to the cycle every 4 years.
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🔥The liquidity of the PBOC has played a role in the Crypto bull market of 2020-2021, the bear market of 2022, the recovery from the cycle low at the beginning of 2022 to early 2023, the surge in the fourth quarter of 2023 (before the approval of the BTC ETF), and the pullback from the second to the third quarter of 2024. Similarly, in the months leading up to the 2024 U.S. election, the PBOC's liquidity turned positive again, bringing about a wave of "election bull". However, as we can see in the chart below, the scale of the PBOC began to decline after September 2024 and bottomed out at the end of 2024, currently rising to a high point not seen in the past year. From the perspective of data correlation, changes in PBOC liquidity usually precede significant fluctuations in the BTC and Crypto markets.
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🔥Interestingly, during the BTC bull market in 2017, the Federal Reserve (FED) was not the one "injecting liquidity"; instead, it raised interest rates 3 times throughout the year and engaged in quantitative tightening. However, risk assets led by BTC still performed very optimistically in 2017, as the PBOC's scale reached a new high that year.
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🔥 In terms of the S&P 500's gains, there is also a correlation with PBOC liquidity. Historically, the annual correlation coefficient between total PBOC assets and the S&P 500 is approximately 0.32 (based on 2015-2024 data). Of course, in a sense, it is also because the PBOC quarterly monetary policy report overlaps with the time window of the Fed's interest rate meeting, so the correlation will be magnified in the short term. To sum up, we can find that in addition to paying close attention to the release of water from Laomei, we also need to pay attention to changes in domestic financial data. A week ago, the news was released: "Monetary policy tools such as RRR cuts and interest rate cuts have left sufficient room for adjustment and can be introduced at any time", what we have to do is to track this change. It is worth noting that in terms of asset size, as of January 2025, China's total deposits are $42.3 trillion, while the total deposits in the United States are about $17.93 trillion. Of course, another point that needs to be explored is whether the liquidity of funds can flow into the crypto market if there is, after all, there are still some restrictions, but Hong Kong has given the answer, and it is different from a few years ago in terms of policy tightening and convenience. Finally, to borrow a sentence from Rebus to end this week's commentary, "When the wind comes, pigs will fly", it is better to ride the momentum than to sail against the current, what we have to do is to dare to climb the stairs and fly against the wind when the wind rises.
#om #sol #pi #eth #btc