Report: BTC global flow correlation exceeds gold and stocks

Source: Blockchain Knights

A recent report by venture capitalist Lyn Alden shows that BTC keeps pace with global liquidity 83% of the time, surpassing all other major asset classes.

The report states that over the years, BTC has shown a strong correlation with global liquidity, with the flagship Crypto asset typically rising when liquidity expands and BTC correcting when global liquidity shrinks.

The report also mentions that this synchronization phenomenon makes BTC the "purest barometer of liquidity".

The report results show that the correlation between BTC prices and global liquidity was 0.94 between May 2013 and July 2024, showing a very strong positive correlation.

However, over shorter time frames, the correlation weakens, with a 12-month rolling average correlation of 0.51 and a 6-month rolling average correlation of 0.36.

It is worth noting that the liquidity measure used in the analysis is the M2 supply, which measures the global money supply. Including cash in people's physical savings, funds allocated to bank accounts, and other short-term savings tools on the market.

Compared to other assets, BTC has the highest average correlation with global liquidity over a rolling 12-month period, followed closely by gold. Equity indices have the second highest correlation, while bond indices have the lowest correlation.

The directional consistency of BTC and liquidity makes it unique.

In 83% of 12-month cycles and 74% of 6-month cycles, BTC moves in the same direction as global liquidity. This consistency is better than other traditional assets analyzed in the report.

The study shows that global liquidity is a key driver of BTC's long-term price performance.

For investors, this insight is valuable in assessing BTC market cycles and predicting future price movements.

However, BTC's correlation with liquidity may be broken during major industry events or extreme market conditions.

The study found that BTC's correlation with liquidity weakens during major events, such as the Mt.Gox hack and the "Crypto Credit Contagion" caused by the collapse of TerraLuna.

Supply-side trends can also affect BTC's liquidity correlation. The "BTC1+ Year HODL Wave" indicator and the Market Value vs. Realized Value Z-Score (MVRV Z-Score) can help identify periods when BTC may deviate from its long-term correlation with global liquidity.

During bull markets, the number of investors holding BTC for more than a year decreases as these holders realize profits, while during crypto asset winters, when they re-accumulate, the number of investors holding BTC increases.

In addition, when MVRVZ values ​​are low, the market price may be flat or slightly below the realized price, indicating that BTC is under-priced.

Therefore, the report concludes that combining global liquidity analysis with on-chain indicators such as the MVRVZ score can provide a more comprehensive understanding of BTC's price cycles and help identify periods when sentiment may override liquidity conditions.