- Lower interest rates by the Fed have injected liquidity, benefiting risk assets like Bitcoin and other commodities.
- Institutional investors have increased their Bitcoin holdings, with ETFs now owning over 5% of total Bitcoin supply.
This Tuesday, a reversal of the “Trump trade” affected Bitcoin’s crypto market. Bitcoin briefly surged to approximately $99,000 before dropping below $93,000, marking a decline of more than 6%. This movement followed rumors that Israel and Lebanon were close to reaching a ceasefire agreement.
The price drop impacted not only Bitcoin but also commodities like gold and oil. While Bitcoin’s recent performance (over 40% growth) has drawn attention, the question remains: is this the beginning of a new trend or a temporary fluctuation?
Bitcoin’s rise in recent weeks has heightened investor sensitivity to risk, and its growth is often tied to shifts in broader economic liquidity. Macro conditions have changed with the Federal Reserve’s recent actions.
On September 18, 2024, the Fed lowered interest rates by 50 basis points to a range of 4.75%-5.00%, ending a cycle of rate hikes that began in 2020.
Lower interest rates generally inject liquidity into markets, benefiting risk assets like Bitcoin. The cryptocurrency’s dual role—as both a hedge against inflation and a potential stock market amplifier—has made it attractive during periods of economic uncertainty.
The re-election of Donald Trump could further influence market liquidity. With plans to implement additional fiscal stimulus policies under a “America First” agenda, increased government spending could boost market liquidity.
Trump’s team has also proposed the establishment of a national Bitcoin reserve, aiming to use cryptocurrency to undermine the competition from the dollar. Additionally, there are talks about appointing cryptocurrency-friendly regulatory officials, which could help develop a framework for U.S.-led global cryptocurrency regulation.
Despite the optimistic outlook, some analysts caution that excess liquidity could lead to financial instability. The MacroMicro U.S. recession index currently estimates a 24.9% chance of a recession by November 2024.
Unlike past recessions triggered by financial crises, this potential downturn could peak within six months. Bitcoin’s price movements in this period will largely reflect its sensitivity to liquidity fluctuations.
#BTC 현물 ETF 축적량, 전체 공급량의 5.33%
[현물 ETF BTC 축적량]https://t.co/glrt9yRxCX#비트코인 현물 ETF 물량은 거래가 시작된 1월 629.9K BTC → 1.0545M BTC 로 +425K BTC 가 증가되었습니다. 이는 현재 채굴된 총 공급량 19.78M BTC 에서 3.15% → 5.33%로 단 10개월 만에 2.18%가… pic.twitter.com/JZ1wZ2K79V
— MAC.D (@MAC_D46035) November 17, 2024
Institutional interest in Bitcoin has grown under these conditions. Since January 2024, Bitcoin’s spot ETF market has gained significant traction, with Bitcoin holdings in ETFs now accounting for 5.63% of Bitcoin’s total supply, according to Okex Cloud Chain Research.
This figure is significant, as institutional investors are typically required to report holdings exceeding 5% to the SEC. Additionally, companies like MicroStrategy have continued to add to their Bitcoin holdings, with the firm purchasing 55,500 Bitcoin for $5.4 billion in November.
This institutional involvement signals a growing acceptance of Bitcoin in corporate strategies, but the market is still in the early stages. Research suggests that in the next year, around $2.28 trillion could enter the Bitcoin market, potentially pushing its price to around $200,000.
However, liquidity excess and the speculative nature of the market have raised concerns about a potential “Trump bubble.” Some argue that bubbles can be beneficial by concentrating capital into emerging industries and projects, leading to long-term infrastructure development, as seen with the internet boom of the 1990s.
In this case, Bitcoin’s price fluctuations may be a reflection of liquidity dynamics, with investors seeking to hedge against inflation.
Looking at inflation concerns, Bitcoin’s performance has outpaced many traditional assets. From 2019 to 2024, the price of milk in the U.S. rose by 49%, while Bitcoin surged by over 1000%.
Countries like El Salvador and the Central African Republic have adopted Bitcoin as legal tender, using its scarcity and decentralized nature to protect against inflation.
While Bitcoin’s future remains uncertain in the short term, its fixed supply of 21 million coins, decentralization, and global liquidity continue to position it as a potential store of value. Institutions and companies increasingly view Bitcoin not just as a speculative asset, but as a key player in the evolving financial ecosystem.
