Bitcoin: A Global Liquidity Barometer

This research piece on the correlation between measures of liquidity and the price of Bitcoin was compiled and written by Sam Callahan, and commissioned and advised by Lyn Alden.

Understanding how asset prices move in response to changes in global liquidity has become crucial for investors aiming to enhance returns and manage risk effectively. In today’s market, asset prices are increasingly shaped by central bank policies that directly affect liquidity conditions. Fundamentals alone are no longer the primary drivers of asset prices.

This has been especially true since the Global Financial Crisis (GFC). Since then, these unconventional monetary policies have increasingly become the dominant force moving asset prices. Central bankers pulling on their liquidity levers have turned the market into one big trade, or, as economist Mohamed El-Elrian puts it, central banks have become “the only game in town.”

Stanley Druckenmiller echoed this sentiment when he stated, “Earnings don’t move the overall market; it’s the Federal Reserve Board…focus on the central banks and focus on the movement of liquidity…most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.”

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