A recent research report by Sam Callahan, commissioned by Lyn Alden, explores the strong correlation between Bitcoin’s price and global liquidity.
Sam Callahan is a prominent figure in cryptocurrency, particularly known for his expertise in Bitcoin. He is the Lead Analyst at Swan Bitcoin, a platform dedicated to Bitcoin education, investment, and accumulation through recurring purchases. Callahan is highly respected for his in-depth research, insights, and analysis of the Bitcoin market, financial systems, and macroeconomic trends impacting the crypto industry.
Callahan explains that Bitcoin follows global liquidity trends 83% of the time over any 12-month period, more than any other major asset class. According to Callahan, Bitcoin’s correlation with liquidity is notable but not immune to temporary deviations, especially during extreme price movements. He highlights that combining global liquidity with on-chain Bitcoin metrics gives a deeper understanding of Bitcoin’s price cycles and potential investment opportunities.
Callahan emphasizes the importance of monitoring global M2, a broad measure of money supply, as a key indicator of liquidity conditions. He uses global M2 from major economies as a proxy for liquidity, noting that the dollar’s role as the global reserve currency makes dollar-denominated M2 a reliable metric. According to Callahan, Bitcoin’s price tends to rise when liquidity expands and declines when liquidity contracts, underscoring its sensitivity to liquidity conditions.
Callahan further explains that Bitcoin is more closely aligned with liquidity trends than other traditional assets, such as stocks, gold, and bonds. He points out that stocks, while correlated with liquidity, are also influenced by earnings and passive inflows, making their relationship with liquidity less pure than Bitcoin’s. Gold, while sensitive to liquidity, is also viewed as a safe-haven asset, leading to a more mixed correlation.
Callahan identifies Bitcoin as the “purest liquidity barometer” because it lacks the earnings or dividends that can impact stocks and isn’t viewed as a safe haven like gold or bonds. This makes Bitcoin more responsive to liquidity changes, making it an attractive investment for those wanting to track liquidity conditions.
However, Callahan cautions that Bitcoin’s correlation with liquidity can weaken in the short term due to internal market dynamics or idiosyncratic events. He references examples like the Mt. Gox collapse and the 2020 COVID-19 crash, where Bitcoin’s price deviated from liquidity trends.
Callahan concludes by emphasizing that combining liquidity metrics with on-chain valuation tools like Bitcoin’s MVRV Z-score—which tracks over- or undervaluation based on historical price data—provides a more complete understanding of Bitcoin’s cycles. This approach, he argues, can help investors predict when Bitcoin may decouple from liquidity trends and offer better timing for entering or exiting the market.
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