Analysis of the Impact of Macroeconomic Factors on Bitcoin Bull Run Prices

This article explores how macroeconomic factors such as global liquidity, interest rates, inflation, and Federal Reserve announcements influence Bitcoin prices during a bull run. By analyzing historical data from 2014 to present, we identify relevant trends and correlations to provide insights for investment strategies.

Global Market Liquidity

Liquidity is crucial for a healthy economy. Increased liquidity drives up asset prices as more funds flow into the market. Periods of high liquidity are typically accompanied by increases in trading volume and prices. Understanding these trends helps investors seize market opportunities and make informed decisions to maximize returns.

The main liquidity indicators include:

• Money Market Fund
• Bank reserves
• Liquidity Coverage Ratio
• Turnover Rate

This article mainly focuses on the M2 money supply. M2 includes physical currency, checking accounts, savings accounts, and other near-money assets, reflecting the overall liquidity level of the economy.

Historically, the peaks in global M2 growth closely align with Bitcoin bull runs. Not only the total money supply is important, but also the rate of change. Bitcoin's volatility often coincides with changes in M2 momentum. This is especially true during bull runs, as increased liquidity typically drives the market up.

Historical Bull Run Review

There have been several significant bull runs in the history of cryptocurrency:

1. First bull run from 2011 to 2013:

   • M2 growth has significantly increased due to the impact of the European debt crisis.
   • Bitcoin rose from $2.93 to $329

2. 2015-2017 Bull Run:

   • Low interest rates and increased money supply continue
   • Bitcoin rose from $200 to $19,000

3. New Era Bull Run from 2020 to 2021:

   • The pandemic has triggered unprecedented loose monetary policy
   • Bitcoin rose from $10,000 to $64,000

4. Recovery and Innovation in 2024:

   • Overall liquidity is declining, with a slight rebound.
   • Bitcoin reached a new high of $85,000, achieving this milestone for the first time without a significant increase in liquidity.

It is worth noting that altcoins perform differently from Bitcoin. The altcoin/Bitcoin price ratio seems to more closely track global net liquidity. Altcoins may require an overall increase in liquidity to enter the growth phase.

Impact of Interest Rates and Inflation

Although Bitcoin is designed to be decentralized, it shows significant volatility in response to monetary policy events. Over time, Bitcoin's sensitivity to central bank decisions has changed:

• Before 2013, the Federal Reserve's monetary shocks significantly lowered Bitcoin prices.
• After 2013, these shocks began to drive up the price of Bitcoin.
• The European Central Bank's de-inflationary impact has been continuously lowering the Bitcoin price.

Since 2020, the volatility of Bitcoin around Federal Reserve announcements has increased significantly, almost immediately reacting to tightening policies. This indicates a closer and more direct correlation between Bitcoin and monetary policy decisions.

The recent inflation data release also triggered an immediate reaction in Bitcoin prices. For example, when the U.S. inflation rate unexpectedly hit 0 in May, the price of Bitcoin surged immediately, but then quickly fell back after the Federal Reserve attempted to curb liquidity expectations.

Conclusion

The relationship between Bitcoin and inflation is complex and constantly evolving, influenced by market maturity and overall economic conditions. Its price dynamics are closely related to global liquidity conditions, driven by central bank policies, investor behavior, and institutional investment trends.

Research shows that the initial demand for Bitcoin stemmed more from its attributes as a decentralized digital cash than from its role as an inflation hedge. However, the significant decline triggered by the Federal Reserve's tightening after 2020 highlighted the speculative factors and a broader investor base.

There is no significant change in market expectations regarding the upcoming inflation data. If the actual results fall below expectations again, it may have relevant impacts. Investors should closely monitor these macroeconomic indicators to better grasp the trends in the Bitcoin market.