According to Bloomberg, Bitcoin (BTC) and other cryptocurrencies may experience a long-term correction due to central banks maintaining tight liquidity levels. In its latest research, Bloomberg Intelligence expressed its hesitancy regarding the continuously rising 2023 crypto market. Despite experiencing a 70% gain in Q1, Bitcoin has yet to convince everyone that it will continue to rise or even maintain its current level near $30,000.
Bloomberg: BTC Price May Not Hold
Bloomberg Intelligence investigated the macroeconomic climate and noticed the close relationship between global central bank liquidity levels and crypto-asset performance. As banks continue to withdraw liquidity from the economy, inflation rises, and risk assets, including crypto, decrease. The United States Federal Reserve began quantitative tightening (QT) in late 2021, coinciding with Bitcoin’s all-time high. Despite the recent banking crisis, Bloomberg found that liquidity continues to be squeezed. It stated in a Twitter analysis from Bloomberg Intelligence senior macro strategist, Mike McGlone, that «Risk assets typically rise and fall on the back of liquidity, and plunging US money supply and bank deposits indicate headwinds for cryptos.»
«It may be illogical to expect that stock market, crude oil, copper, and the Bloomberg Galaxy Crypto Index (BGCI) to sustain recent bounces with the year-over-year measures of money supply and commercial bank deposits falling around 2%—the most in our database since 1959.»
These misgivings came as Bitcoin battled to turn historical resistance back to support, with bulls unable to effect major change. Concerning liquidity, others are already noting that crypto now responds to the actions of central banks other than the Fed. Both China and Japan have enacted liquidity injections this year, resulting in the question of what stops the contracting liquidity.
«Most central banks still tightening may portend a lower plateau for the BGCI. Our take is Bitcoin faces headwinds but will eventually transition to trade more like gold and Treasury bonds.»
A thousand words in a chart — liquidity rug-pull:
It may be illogical to expect the #stockmarket, #crudeoil, #copper and #Bitcoin to sustain recent bounces with year-over-year measures of money supply and commercial bank deposits falling the most in our database since 1959. pic.twitter.com/O36SxGdK48
— Mike McGlone (@mikemcglone11) April 5, 2023
US Dollar Affects Bitcoin Price
At the time of writing on April 6, BTC/USD traded around $28,100, according to data from Cointelegraph Markets Pro and TradingView. The U.S. Dollar Index (DXY) saw fresh losses, abandoning a modest comeback to drop back below 102, which may provide a short-term tailwind for risk assets. While analyzing the situation, popular Crypto Twitter account Cold Blooded Shiller remained tentatively optimistic about the outcome of BTC’s price. Analyst Justin Bennett pointed out a distinct range still remaining for the DXY, predicting a rebound to come.
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