Matrixport Investment Research: How Liquidity and Macroeconomic Indicators Affect BTC

BTC performs well when market liquidity returns. As a decentralized and scarce digital asset, BTC thrives in an environment where financial conditions are loose, risk appetite is high, and capital flows into speculative assets. However, BTCs relationship with liquidity is not just theoretical, but is driven by specific macroeconomic indicators that affect market conditions.

BTC and gold respond differently to different liquidity scenarios due to their different roles in the financial system, differences in market structure, and differences in investor behavior. Institutional and retail investors allocate more capital to speculative assets, leading to higher BTC prices. Gold also tends to perform well, but the impact is more indirect. Lower interest rates reduce the opportunity cost of holding gold, thereby increasing demand for gold as a store of value.

As liquidity dries up, investors pull out of risky assets and reduce leverage. Gold fares better because it is considered a safe haven asset. However, rising interest rates increase the opportunity cost of holding gold, limiting its upside.

In July 2024, Senator Cynthia Loomis introduced the Boosting National Innovation, Technology, and Competitiveness through Optimizing Investment (BITCOIN) Act of 2024. The bill proposes that the U.S. Treasury purchase one million BTC within five years to establish a strategic BTC reserve.

If the US sells 15% of its gold reserves, it would realize about $110 billion, which could buy 1.05 million BTC at current prices. However, the Bitcoin price will not remain stable under such a large buying pressure. According to our calculations, an inflow of $18 billion usually pushes the BTC price up by $10,000 (this number is also volatile). This suggests that the US governments $110 billion purchase of Bitcoin could increase the BTC price by $60,000, and this does not even take into account the psychological impact of such a move on the market.

Both BTC and gold react similarly to macroeconomic indicators, and the Fed and the Treasury should be unbiased in holding either or determining their proportion. BTC and gold are rising for a reason – their surge is driven by market liquidity and strong demand for alternative assets.

BTC price movements are greatly influenced by liquidity conditions, monetary policy, interest rates, inflation, and the strength of the U.S. dollar. Indicators such as ON RRP balances, the Fed鈥檚 balance sheet, Treasury yields, and the federal funds rate provide key insights into the overall liquidity environment.

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