Hidden Code of Rise and Fall: How Does Global Liquidity Affect Bitcoin Trends?

Author: Bitcoin Magazine Pro; Compiler: Vernacular Blockchain

Bitcoin's price movements are often analyzed through on-chain data, technical indicators, and macroeconomic trends. However, a severely underestimated but extremely important factor is global liquidity. Many investors may not fully utilize this indicator, or even have misunderstandings about how it affects Bitcoin's cyclical trends.

1. The impact of global liquidity on Bitcoin

With the heated discussion on global liquidity on platforms such as Twitter (X), and analysts' in-depth interpretation of liquidity data, understanding the relationship between global liquidity and Bitcoin prices has become a must for traders and long-term investors. However, recent trends have deviated from traditional expectations, indicating that the market may need a more nuanced analytical perspective.
The global M2 money supply refers to the sum of all liquid currencies, including cash, demand deposits, and quasi-monetary assets that can be easily converted.

• When global M2 expands, capital typically flows to high-yield assets, including Bitcoin, stocks, and commodities, driving prices up.

• On the contrary, when M2 shrinks, market liquidity tightens, and risky assets often face downward pressure on valuations.

In the current market environment, the traditional relationship between liquidity and asset prices may be changing, which requires investors to have a higher level of understanding.

Figure 1: Global liquidity is rising, but Bitcoin prices have recently fallen

Historical trends: Bitcoin price divergence from global M2
In the past, Bitcoin prices usually rose with the expansion of global M2 money supply, and faced pressure when liquidity contracted. However, in this cycle, we have observed a clear deviation: despite the continued growth of global M2, Bitcoin's price trend has shown inconsistency.

2. Year-on-year change: a more accurate measure of liquidity

Instead of focusing solely on the absolute value of global M2, a more insightful approach is to analyze its year-on-year rate of change (YoY). This indicator reflects the speed of liquidity expansion or contraction, thereby revealing a clearer correlation between Bitcoin's price performance and liquidity.
When we compare Bitcoin's year-on-year return (YoY Return) with the year-on-year change (M2 YoY Change) of global M2, we can find that the correlation between the two has increased significantly.

• Bitcoin's strongest bull market phases often occur during periods of rapid liquidity expansion.

• Liquidity contraction usually precedes a pullback or long-term shock consolidation in Bitcoin's price.

This finding suggests that investors need to pay more attention to changes in the growth rate of global liquidity, rather than just the absolute level of liquidity.

Figure 2: The annual rate of change of global liquidity can more clearly reveal the liquidity cycle

For example, in the consolidation phase of Bitcoin in early 2025, although the global M2 grew steadily, its growth rate tended to stabilize. Only when the expansion rate of M2 accelerates significantly, Bitcoin is likely to break through a new high.

3. The lag effect of liquidity

Another key observation is that the impact of global liquidity on Bitcoin is not immediate. Studies have shown that Bitcoin prices typically lag behind changes in global liquidity by about 10 weeks.

• If the global liquidity index is moved forward by 10 weeks, the correlation between Bitcoin's price trend and it will be significantly enhanced.

• After further optimization, it was found that the most accurate lag period is about 56 to 60 days, or about 2 months.

This lag effect means that investors need to consider the time delay when analyzing the impact of liquidity on Bitcoin, rather than just focusing on the current liquidity level.

Figure 3: The correlation is strongest when liquidity data lags two months

4. Bitcoin Outlook

For most of 2025, global liquidity entered a sideways phase, after a strong expansion at the end of 2024 pushed Bitcoin to a new high. This sideways liquidity period coincided with Bitcoin's consolidation and pullback to about $80,000.
However, if historical trends continue to work, the recent rebound in global liquidity is expected to bring a new round of gains for Bitcoin around the end of March.

Figure 4: Liquidity is surging, but Bitcoin may take a few weeks to really benefit

5. Conclusion

Global Liquidity is an important macro indicator for predicting Bitcoin trends. However, rather than relying on static M2 data, a more effective approach is to focus on the rate of change of M2 and understand the impact of Bitcoin prices, which usually lags by about two months.
As the global economic environment changes and central banks adjust their monetary policies, Bitcoin prices will continue to be affected by liquidity trends. The next few weeks are crucial - if global liquidity continues to expand at an accelerated pace, Bitcoin may usher in a major rally.