Bitcoin stuck in consolidation without a major catalyst – Matrixport

Bitcoin’s price move could be stuck in a trading range with little obvious catalysts, Matrixport analysis said.

In its report, the firm challenges the effectiveness of global liquidity indicators in predicting cryptocurrency price movement. The report goes against the general assumption that an increase in global liquidity can be directly related to Bitcoin prices.

Whereas most traders watch these numbers with expectations of spikes in liquidity driving cryptocurrency gains, Matrixport states that such an approach “may be on shaky ground, as it lacks rigorous mathematical justification.”

Bitcoin-NASDAQ correlation is still below COVID highs

Despite more institutional exposure to Bitcoin through ETFs, the correlation of Bitcoin with the NASDAQ index has not risen above long-term trends. Matrixport’s analysis shows that over the past seven years, the correlation has only spiked from time to time and is well short of the 60% level seen during the COVID era, even as it is on an upward trend.

The arrival of Bitcoin ETFs, which most were anticipating more correlation between Bitcoin and traditional markets, has not yet driven this relationship meaningfully above historical norms. This indicates that Bitcoin continues to hold some level of autonomy from broad market movement despite increased institutional investment.

Without having large drivers such as the November 2024 U.S. presidential election, Bitcoin is observed to be consolidating. In such a scenario, Bitcoin pretty much traded sideways, according to Matrixport.

The current technical environment supports this consolidation thesis. Rekt Capital analyst indicates Bitcoin is pulling back towards the general Daily CME Gap area at $82,000 and $85,000, which needs to be retested as support for further upside continuation ahead.

Delay between liquidity growth and Bitcoin price implications

There is a lag in the relationship between the growth of money supply and movements in Bitcoin prices, making direct correlation analysis difficult. According to Matrixport, traders often expect a change in liquidity to change the price quickly, but a lag between the growth in money supply and price action could exist.

They suggest that if there is a reliable time lag, it ought to always be 13 weeks, meaning a little more than three months. The lag occurs because when the Federal Reserve grows M2 money supply, the liquidity follows a defined path before it can influence cryptocurrency markets.

As Matrixport explains, when the Federal Reserve expands M2, the new money flows to banks and other financial institutions by way of asset purchases—government bonds, for example. At that point, the funds continue to move into the economy through lending or investment before eventually being deposited in banks.

Eventually, this liquidity gets to the cryptocurrency markets, but the whole process takes time. In other words, this is a multi-stage response to monetary policy which engenders the lag between liquidity changes and the potential impact on Bitcoin’s price.

Crypto-native drivers may prove more reliable

Instead of concentrating solely on general macroeconomic processes like global liquidity, Matrixport noted that it may be more insightful to look for crypto-native drivers. It specifically notes macro factors with specific policy implications, such as pro-crypto political leadership containing more impact.

This viewpoint also supports the report’s comments that Bitcoin’s prices have had the biggest swings when we consider specific events rather than major trends in liquidity. It provides an example, the U.S. presidential election in November 2024, which ignited the second leg of last year’s rally simply because of the implications for some regulation and adoption of crypto.

In the absence of such clear catalysts, Bitcoin has historically entered consolidation phases where it “mostly traded sideways.” The current market environment appears to fit this pattern, with Bitcoin testing technical support levels as described by Rekt Capital’s analysis of the “Daily CME Gap area between $82k $85k.”

The report concludes by mentioning a “liquidity-based indicator that has predicted the last four major Bitcoin turning points.” However, it does not provide specific details about this proprietary metric.

Cryptopolitan Academy: Coming Soon - A New Way to Earn Passive Income with DeFi in 2025. Learn More