Matrixport Research: How Liquidity and Macroeconomic Indicators Affect BTC (2)

The future trend of BTC is influenced by various macroeconomic factors, especially the Treasury's debt issuance policy, the strength of the dollar, and changes in the money supply. It is recommended that investors pay attention to macroeconomic dynamics such as fiscal policy, dollar fluctuations, and adjustments in the money supply to respond to potential market changes.

Change in U.S. Treasury Secretary May Alter Debt Issuance Strategy, Affecting Market Liquidity and Sentiment

During the tenure of former Treasury Secretary Janet Yellen, the U.S. Treasury adjusted its debt issuance strategy by reducing the issuance of long-term bonds and favoring short-term Treasury bills (T-bills). This strategy helped maintain stable Treasury yields, weakened the attractiveness of fixed-income assets, and prompted investors to turn to higher-risk assets such as BTC and stocks. As market liquidity increased, investors' risk appetite rose, thereby boosting BTC prices.

However, with the appointment of new Treasury Secretary Scott Bessent on January 28, the Treasury's debt issuance strategy may change. If the Treasury resumes increasing the issuance of long-term bonds, it could push up bond yields, tighten market liquidity, and weaken demand for risk assets. In a tightening financial environment, BTC's upward momentum may come under pressure. Therefore, investors need to closely monitor changes in the Treasury's debt issuance policy, as this will directly impact market liquidity and sentiment.

Geopolitical Risks Support the Dollar, Global Liquidity Tightens, Limiting Liquidity for Risk Assets like BTC

The U.S. Dollar Index (DXY) is one of the main macroeconomic factors affecting BTC price fluctuations. It measures the strength of the dollar against a basket of foreign currencies. A stronger dollar typically indicates tightening global liquidity, which weakens the attractiveness of risk assets like BTC.

On February 19, U.S. President Trump took a hardline stance on Ukraine on his social media platform, raising market concerns about geopolitical risks. On February 20, the dollar index fell by 0.57%, and BTC prices rebounded to $98,415.09, with a daily increase of 1.83%. Although geopolitical factors have recently supported the dollar, the market generally expects European countries to adopt a pragmatic approach to a potential ceasefire agreement between Russia and Ukraine, which may affect the dollar index's trend.

Expansion of Money Supply May Drive Up BTC Demand

According to the latest data from Jin10, M2 grew by 7% year-on-year at the end of January 2025, which helps enhance market liquidity. Additionally, the seasonally unadjusted CPI data for January in the U.S. exceeded market expectations. Therefore, after the CPI announcement, market expectations for a potential rate cut by the Federal Reserve in June rose to 60%.

(Global) Money supply (M2) measures the total amount of money circulating in the economy, including cash, deposits, and other liquid assets. When M2 expands, liquidity in the financial system increases, leading to an increase in investment capital. This excess liquidity typically results in an increased risk appetite among investors, driving up demand for risk assets like BTC.

However, if M2 continues to grow too quickly, it may exacerbate inflationary pressures, potentially prompting the Federal Reserve to tighten monetary policy, thereby putting pressure on risk assets like BTC. Therefore, investors should pay attention to changes in the money supply and key economic data such as CPI to assess BTC's trend and market liquidity trends.

The above views are sourced from Matrix on Target. Contact us for the complete report from 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 may 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 herein.