The Fed finally cut interest rates. Is the market turning point coming soon?

Liquidity is growing rapidly, but the crypto market is still waiting for a shift from risk aversion to risk preference.

Translation: DeepFlow Tech

Global M2 money supply has reached a historic high, yet the price of BTC remains low.

Liquidity has not flowed into the cryptocurrency market as investors are more inclined to choose safe assets such as gold.

Will this situation change? (Thanks to @BittelJulien)

Currently, BTC has been fluctuating within a clear range for 6 months.

Volatility is narrowing, like a tightly wound spring.

In fact, only in August 2023 and May 2016 did the BTC price range tighten more, lasting for 180 days.

(Thanks to @glassnode)

Since August, the dominance of stablecoins has been continuously rising, reflecting this risk-averse mentality.

Investors seek safe assets as a haven in macroeconomic uncertainty.

Stablecoins dominate trading pairs, serving as substitutes for investor demand.

The overall stablecoin supply is approaching a historical high of $160.4 billion.

This indicates the accumulation of US dollar capital within the crypto ecosystem.

However, these capital have not yet flowed into risk assets, indicating that investors remain cautious.

As central banks lower interest rates, this caution may gradually diminish.

A shift in risk preference sentiment may prompt capital to flow from stablecoins into altcoins.

This will inject liquidity into the crypto market and potentially drive prices higher.

Such a shift may rekindle trading activity.

Meanwhile, gold and M2 exhibit significant correlation, further consolidating its role as a hedge against economic recession.

With the increase in money supply, demand for gold also rises, consolidating its position as a safe-haven asset.

In August, gold rose due to recession concerns, while risk assets performed weakly.

Interestingly, BTC and gold often alternate in fluctuations, with one rising while the other consolidates.

This month, the price of gold has risen by over 5%.

When the upward trend of gold pauses, this may imply a shift in risk preference sentiment, triggering an increase in BTC.

Although often referred to as "digital gold," BTC's trend is consistent with $NDX.

Its trend is similar to high-risk tech stocks.

The correlation between BTC and $NDX has always been strong, and has recently strengthened.

However, a recent report from BlackRock presents a different view.

During major events, BTC usually has a negative reaction to short-term uncertainty.

However, even when gold and the S&P 500 index perform poorly, BTC's 60-day returns remain positive.

Despite short-term volatility, BTC may exhibit resilience over a longer period.

However, due to its shorter history as an institutional asset, more data is needed.

Further analysis is required to fully assess BTC's performance during periods of uncertainty.

However, BTC has always followed liquidity, rising with loose monetary policies.

43% of central banks have already implemented loose policies, increasing liquidity.

This may soon drive investment into risk assets such as BTC.

Summary

Liquidity is growing rapidly, but the crypto market is still waiting for a shift from risk aversion to risk preference.

Central bank policies may trigger this change, injecting idle capital into the crypto market.

The rise may be very rapid, but concerns about recession still exist (not financial advice).

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