Liquidity has a major impact on digital asset prices, including Bitcoin (BTC). This was further corroborated by a 2024 academic paper by Kingston University of London professors Jinsha Zhao and J Miao, which concluded that dollar monetary liquidity “has [a] significant impact on Bitcoin price.”The relationship strengthened after the COVID-19 pandemic, with liquidity conditions accounting for more than 65% of Bitcoin’s price movements.“After the pandemic, [monetary liquidity] is the most important determinant of Bitcoin price, outperforming even fundamental measures of Bitcoin network,” the researchers said. Macro analyst Lyn Alden reached a similar conclusion when she called Bitcoin “a global liquidity barometer” in a September article. Alden drew attention to the relationship between Bitcoin’s price and global M2, or the broad measure of money supply across major global economies. Bitcoin trades in the same direction as global liquidity more than 83% of the time.
While Collins and her fellow FOMC members voted to keep interest rates steady at their March meeting, the biggest takeaway was the central bank’s easing off on quantitative tightening by reducing the redemption cap on Treasurys by 80%. Related: S&P 500 briefly sees ‘Bitcoin-level’ volatility amid Trump tariff warThe Fed moves marketsFederal Reserve policy exerts a gravitational pull on global markets through US dollar monetary liquidity, or the ease with which dollars can be used for investments and transactions.
The US Federal Reserve is prepared to use its vast arsenal of monetary policy tools to prevent financial and economic conditions from deteriorating rapidly but will do so only if liquidity dries up or markets become disorderly, a top central banker said.
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