Matrixport Research: How Liquidity and Macroeconomic Indicators Affect BTC

BTC performs well when market liquidity returns. As a decentralized and scarce digital asset, BTC thrives in an environment of loose financial conditions, high risk appetite, and capital flowing into speculative assets. However, the relationship between BTC and liquidity is not just theoretical; it is driven by specific macroeconomic indicators that influence market conditions.

Due to their differing roles in the financial system, market structure differences, and variations in investor behavior, BTC and gold respond differently to various liquidity scenarios. Institutional and retail investors allocate more capital to speculative assets, leading to an increase in BTC prices. Gold also tends to perform well, but its influence is more indirect. Lower interest rates reduce the opportunity cost of holding gold, thereby increasing demand for gold as a store of value.

As liquidity dries up, investors withdraw from risk assets and reduce leverage. Gold performs better as it is considered a safe-haven asset. However, rising interest rates increase the opportunity cost of holding gold, thus limiting its upside potential.

In July 2024, Senator Cynthia Lummis introduced the "2024 Bill to Enhance National Innovation, Technology, and Competitiveness through Optimized Investment (BITCOIN)". The bill proposes that the U.S. Treasury purchase one million BTC over five years to establish a strategic BTC reserve.

If the U.S. sells 15% of its gold reserves, it would realize about $110 billion, which could buy approximately 1.05 million BTC at current prices. However, the price of Bitcoin would not remain stable under such large buying pressure. According to our calculations, an inflow of $18 billion typically drives the BTC price up by $10,000 (this figure is also volatile). This suggests that a $110 billion acquisition of Bitcoin by the U.S. government could push the BTC price up by $60,000, without even considering the psychological impact of such a move on the market.

Both BTC and gold respond similarly to macroeconomic indicators, and the Federal Reserve and Treasury should have no preference when holding either or determining their proportions. The rise of BTC and gold is justified—their surges are driven by market liquidity and strong demand for alternative assets.

The price movements of BTC are greatly influenced by liquidity conditions, monetary policy, interest rates, inflation, and the strength of the dollar. Indicators such as ON RRP balances, the Federal Reserve's balance sheet, Treasury yields, and the federal funds rate provide key insights into the overall liquidity environment.

The above opinions are derived from Matrix on Target. Contact us for the complete report on Matrix on Target.

Disclaimer: The market carries risks, and investment should be approached with caution. This article does not constitute investment advice. Trading in digital assets can involve significant risks and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. Matrixport is not responsible for any investment decisions made based on the information provided in this content.