Bitcoin's Future Breakout May Depend on More Than Just Liquidity Growth

Analysts are questioning the significance of liquidity growth in driving Bitcoin's (BTC) next breakout, as the cryptocurrency may continue to consolidate.

While global liquidity often increases alongside Bitcoin's price, analysts are skeptical about whether this correlation is strong enough to spark a rally.

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In a post on Friday, March 28, Matrixport's analysts observed that when central banks expand the money supply, some of that liquidity eventually makes its way into the crypto market. However, they cautioned that this doesn't necessarily mean higher Bitcoin prices will follow, as the connection lacks a strong theoretical basis.

"Although there may be a delay between money supply growth and Bitcoin's price movements, there is no robust theoretical reason for why this should consistently be 13 weeks — the timeframe that currently offers the best visual correlation."

Matrixport

The analysts also warned that comparing Bitcoin's price with global liquidity could be deceptive, as both time series "are non-stationary — they trend over time — which can distort correlation analysis and lead to misleading results."

Without a clear catalyst, Bitcoin's price could continue to move sideways, according to Matrixport. They noted that apart from events like the U.S. presidential election last year, the cryptocurrency has primarily traded sideways. While some traders still view liquidity trends as a crucial indicator, the analysts argue that crypto-native factors or macroeconomic policies may be more informative.