Global liquidity: the tide that lifts all crypto boats

If you overlay the $BTC chart on the global M2 money supply chart, the coincidence of turning points is striking: crypto is a derivative of the amount of free money in the system. This dull explanation of cycles works better than esoterica.

What "liquidity" means without the fog

The aggregate of money available for investment: central bank balance sheets, money supply aggregates (M2) of the largest economies, reverse repo, the US Treasury account. When central banks print and governments spend - there's more money, and part of the surplus flows into risk assets. When it's withdrawn (QT, rate hikes) - there's an outflow, and crypto shallows out first.

Why crypto is more sensitive than stocks

Crypto has no cash flow of its own to support the price during an outflow: no dividends, no buybacks. Price is a pure function of the inflow of new money. That's why $BTC's beta to liquidity is higher than that of indices, and altcoins' beta is higher than $BTC's.

In practice

It's enough to track the direction: is the aggregate balance sheet of the largest central banks growing, is the rhetoric softening, is M2 accelerating. This isn't a timer for days - it's the backdrop for quarters that determines whether you're playing with the flow or against it. Our macro coverage is in the markets section.