Impact Of Economic Indicators On Bitcoin's Performance

According to Odaily, Matrixport's weekly report titled "How Liquidity and Macroeconomic Indicators Affect Bitcoin" highlights several factors influencing Bitcoin's market dynamics. During U.S. Treasury Secretary Janet Yellen's tenure, the Treasury shifted its debt issuance strategy towards short-term Treasury bills over long-term bonds. This approach kept long-term bond yields stable, reducing the appeal of fixed-income assets and driving investors towards high-yield options like Bitcoin and stocks. The increased liquidity bolstered risk appetite, supporting Bitcoin's bullish momentum. However, with Scot Bessent taking over the Treasury, this strategy might reverse, potentially increasing yields, tightening liquidity, and reducing demand for risk assets. Investors are advised to closely monitor the Treasury's issuance policy as it significantly impacts liquidity and market sentiment. The report also identifies the U.S. Dollar Index (DXY) as a crucial macroeconomic factor affecting Bitcoin's price volatility. A stronger dollar tightens global liquidity, diminishing the appeal of risk assets like Bitcoin. Additionally, inflation data plays a significant role in Bitcoin's price trends. The Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) are key inflation indicators monitored by the Federal Reserve. Lower-than-expected CPI data suggests cooling inflation, which may prompt the Federal Reserve to adopt a more hawkish policy stance, increasing market liquidity and risk appetite, thus creating a favorable environment for Bitcoin. Another critical macroeconomic indicator is the global money supply (M2), which measures the total amount of money in circulation, including cash, deposits, and other liquid assets. When M2 expands, financial system liquidity increases, boosting investment capital. This excess liquidity typically leads to increased risk appetite among investors, driving demand for risk assets like Bitcoin. Conversely, when M2 contracts, liquidity tightens, challenging speculative investments. By the end of 2023, the M2 supply ceased contracting, helping Bitcoin surpass $40,000. If the Federal Reserve resumes increasing M2, Bitcoin could experience another liquidity-driven rally. However, if M2 grows too rapidly, inflation may rise, forcing the Federal Reserve to tighten monetary policy, which would be unfavorable for Bitcoin. The ideal scenario for Bitcoin is moderate M2 growth without excessive inflation, ensuring liquidity and stable economic conditions.