In the market, certain moments build momentum without dramatic triggers; they simply gather strength until a shift occurs. For Bitcoin (BTC -1.20%), various factors are aligning perfectly, likely leading to significant outcomes.
1. Increasing Global Liquidity
When central banks increase liquidity, more money circulates within the financial system, typically transitioning towards riskier assets like cryptocurrencies, as investors become braver in their choices. Moreover, safer asset classes have often become pricey from an institutional investor perspective.
The global M2 money supply reached about $108.4 trillion in April, growing at a rate comparable to the period just before Bitcoin’s breakout in 2021. Historically, Bitcoin’s performance tends to lag this liquidity measure by roughly one quarter.
Though liquidity waves will eventually peak, the cash they inject seldom entirely leaves the financial ecosystem. If some of this extra base money is permanently held in Bitcoin wallets—as seen in prior monetary easing cycles—owners could benefit from a more substantial floor even after central banks start tightening again.
2. A Declining Dollar
As the dollar’s value decreases, investors often shift their funds into stronger assets, such as Bitcoin, which may hold its value or appreciate.
The dollar index has decreased around 10% year-to-date, marking its steepest six-month decline since 1986. Fund managers are reported to be as underweight in the currency as they have been in 20 years, based on a recent Bank of America survey.
This dollar weakness can provide Bitcoin not only with immediate benefits but also boosts demand from countries that view Bitcoin as a liquid alternative to their depreciating local currencies. This newfound global demand tends to persist because reversing dollar depreciation typically necessitates substantial policy changes that may take years.
3. Falling Treasury Yields
Interest rates significantly impact Bitcoin’s value as well. A drop in yields on government-backed securities like U.S. Treasury bills passes on cheaper borrowing costs across the financial system, prompting capital to flow into riskier assets to secure returns.
For context, benchmark 10-year Treasury yields have fallen from 4.81% in late January to the low 4% range recently. Historically, notable surges in Bitcoin’s price have closely followed decreases in both real and nominal yields.
This trend is significant for the future, as lower yields encourage investors to consider Bitcoin as a diversification tool, especially when bonds offer diminished returns. This mindset can persist even when rates rise again, similar to gold’s enduring popularity after real yields improved in the 1980s.
4. Post-Halving Supply Reduction
Bitcoin’s supply dynamics are also favorable, paving the way for another potential surge toward new all-time highs.
The upcoming 2024 halving will reduce miner rewards, limiting daily issuance to about 450 coins, while demand from institutional investors through Bitcoin exchange-traded funds (ETFs) is increasing beyond that amount. Additionally, any supply shock due to decreasing issuance amplifies over time.
If prices begin to rise, miners will eventually sell fewer coins to cover their costs, and new issuance will continue to diminish every four years. This structural limitation gives long-term holders a growing share of Bitcoin’s total supply, enhancing their pricing power if they resist trading amid short-term fluctuations.
The takeaway for long-term investors is to continue acquiring Bitcoin, as its potential for growth this summer and beyond appears significant.
