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Follow the Money: Why Global Liquidity Matters for Bitcoin

💧 Unpacking global liquidity to uncover its link to Bitcoin and reveal how it impacts Bitcoin’s biggest price moves.

Author

Hector Alvero
May 27, 2025

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Featured Article

What Is Global Liquidity?

In Bitcoin circles, “global liquidity” refers to the total money supply across major economies. It’s often tracked using global M2, which measures liquid assets like cash and deposits, reported by central banks.

While definitions vary, most indexes focus on top economies such as the US, China, EU, UK, Japan, and Australia. Many investors see it as a key signal for future asset price movements, including Bitcoin.

Why is Global Liquidity Important?

Conventional thinking says more money in the system leads to more investment in assets like stocks, real estate, and Bitcoin. This is why many people track global liquidity to try to anticipate Bitcoin price moves.

But it’s not that simple. Global liquidity is difficult to measure, definitions vary, and Bitcoin’s correlation to it changes depending on the time frame.

Most use global M2 as a basic proxy, but the real signal is in the rate of change and in how central banks are adjusting their balance sheets relative to each other.

For example, an Australian investor shouldn’t just ask if global liquidity is rising, but whether Australia’s monetary policy is looser or tighter compared to the Fed or the ECB.

Assessing Bitcoin’s Correlation to Liquidity

When comparing assets, correlation measures how closely they move together. Bitcoin can be analyzed the same way against global liquidity.

Two key periods show strong alignment: a sharp rise in liquidity after COVID and a decline during the Fed’s rate hikes.

Correlation depends on both direction (do both move up or down together?) and magnitude (how much they move relative to each other). Most focus only on direction.

Lyn Alden notes that while short-term correlation between Bitcoin and global liquidity is weak, over longer time frames Bitcoin tracks liquidity more closely than any other major asset.

Curious about how to more accurately measure global liquidity? Read the full post here to find out more.

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