Summary Stocks and Bitcoin are surging due to increased liquidity from the Fed and PBoC, with Bitcoin poised for new highs. The PBoC's recent measures to boost liquidity, including rate cuts, are significant and unexpected, driving market optimism. Bitcoin's strong correlation with liquidity, combined with bullish technical indicators and upcoming catalysts, suggests a potential explosive rally. Despite recent volatility, Bitcoin's macroeconomic environment and technical setup indicate substantial upside potential, with a possible peak early next year. Thesis Summary Stocks are at all-time highs, Bitcoin USD (BTC-USD)is back above $63,000, and we are even seeing outperformance in the riskier segments of the market (altcoins and small caps). This has a lot to do with the Fed, but more to do with the People’s Bank of China, and ultimately boils down to liquidity. I expect liquidity dynamics to continue to improve in the medium term, and Bitcoin, which acts as a liquidity proxy, is set to reach new highs. There are many bullish catalysts coming together which suggest we could see an explosive year-end rally. In my last article , when Bitocin hovered around $56,000 I pointed out the specific reasons Bitcoin was selling off, and why I remained bullish. Price action is now proving us right, and there are even more bullish catalysts on the horizon. China Says Go The PBoC came out on Tuesday and announced numerous measures to help boost their economy and increase liquidity. The Chinese Central Bank said it would be cutting the Reverse Repo Rate by half a percentage point, which is expected to increase liquidity by around one trillion yuan. On top of that, rates for existing mortgages will be cut, and down payments on existing homes will be lowered to 15% This is a huge move for China, which has been slow to tap into monetary and fiscal stimulus but seems to have finally relented. While this could lead to negative effects down the road, markets have cheered these moves so far. In effect, in the last month, we have seen the two largest and most important Central Banks in the world carry out significant policy changes, and in both cases, investors have been surprised. Few would have actually expected a 50 bps rate cut a few months ago, and fewer even would have expected China to come out and cut their rates and stimulate their housing market. Why Liquidity Matters (Especially To Bitcoin) Liquidity is perhaps the most important variable that moves markets today. Our debt-driven economies need constant stimulus from Central Banks in order to thrive, and this is something markets understand. US liquidity can be roughly calculated by adding up the Fed balance sheet and the reverse repo facility and subtracting the Treasury General Account. Extrapolate this to other countries and you can also calculate global liquidity. And in terms of determining global liquidity, the two most important banks are the Fed and PBoC. SPX and Fed net liquidity (TV) The chart above overlays the SPX with a measure of Fed liquidity developed by a TradingView user. We can see how stocks hold a strong correlation with liquidity. This is doubly true for Bitcoin. Bitcoin and global liquidity (Redfin) Bitcoin, which can be seen by many as a monetary hedge, holds a very strong correlation with liquidity, sometimes even acting as a leading indicator. Since its inception, Bitcoin has benefited from increased monetary stimulus. With the battle against inflation seemingly won, the Fed cutting rates, and now the PBoC joining the party, there’s not much to stop Bitcoin from exploding here, and this is just one of many bullish signals. Clear Bullish Signs While we have seen some volatility in the last month, there are plenty of reasons to stay bullish, especially now. The Bitcoin Cycle Halving Cycle (CryptoCon) The famous four-year Bitcoin cycle that happens around the halving, suggests that a Bitcoin top could occur sometime early next year. In past cycles, Bitcoin typically reached a top of around 366 days to 548 days after the halving. The last halving took place on April 19th. Seasonality also suggests that October, November, and December should be strong months for Bitcoin. Options and CZ release We’ve also seen some bullish news come out recently around Bitcoin. For starters, options have been approved for Bitcoin ETFs . While it is unclear what the effect will be long-term Jeff Park, Head of Alpha Strategies made some very bullish comments on X. With today’s approval by the SEC to list and trade Bitcoin ETF options, I shared that we are on the verge of witnessing the most extraordinary upside of vol in financial history. I felt this deserved a fuller explanation, so I want to highlight a few characteristics of Bitcoin, the nature of the regulated options market, and the powerful combination of the two. Without exaggeration, this marks the most monumental advancement possible for the crypto market. Source: Bravenewcoin On top of that, Binance founder and CEO Changpeng Zhao will soon be released from prison . Will this hardly have a “fundamental” effect on the price of Bitcoin, it will certainly serve to re-ignite interest and investor enthusiasm. Altcoin Rally The fact that this latest rally is being led by altcoins is also quite bullish, showing that there’s a lot more depth to this rally. TOTAL3 (TV) We can see this in the breakout on TOTAL3, which measures the crypto market cap excluding Bitcoin and Ethereum USD (ETH-USD) Technical Analysis And, of course, the technical chart looks more bullish than ever. Bitcoin TA (Trendspider) I pointed out to subscribers a few weeks ago the divergence we were forming in the RSI, just as we also got a bullish cross and sentiment was at its lowest point. Since then, we have broken above the key EMAs, and even broken out of the channel we had been in over the last 3 months. While we may retest the EMAs soon, the stage is now set for a push to my next target of around $100,000. Takeaway All in all, Bitcoin continues to show great strength and should continue to move up as the macro picture supports this. I think Bitcoin could top early next year, but we still have plenty of upside left before that.
