Report: BTC global flow correlation surpasses gold and stocks

Source: Blockchain Knight

A recent report by venture capitalist Lyn Alden shows that BTC is synchronized with global liquidity 83% of the time, surpassing all other major asset classes.

The report states that over the years, BTC has shown a strong correlation with global Liquidity. When Liquidity expands, the flagship Crypto assets usually pump, and when global Liquidity contracts, BTC will correct.

The report also mentioned that this synchronous phenomenon makes BTC the “purest Liquidity barometer”.

The report results show that during the period from May 2013 to July 2024, the correlation between BTC price and global Liquidity is 0.94, indicating a very strong positive correlation.

However, within a shorter time frame, the correlation weakened, with a 12-month rolling average correlation of 0.51 and a 6-month rolling average correlation of 0.36.

It is important to note that the Liquidity measure used in the analysis is the M2 Money Supply, which measures the global Money Supply. This includes cash in people’s physical savings, funds allocated to bank accounts, and other short-term savings instruments in the market.

Compared to other assets, BTC has the highest average correlation with global Liquidity over the rolling 12-month period, followed closely by gold. The correlation with stock indices is lower, while the correlation with bond indices is the lowest.

The consistency of BTC and Liquidity sets it apart.

BTC’s trend is consistent with global Liquidity in 83% of the 12-month period and 74% of the 6-month period. This consistency is better than other traditional assets analyzed in the report.

Research shows that global Liquidity is a key driving factor for the long-term price performance of BTC.

For investors, this insight is valuable in assessing the BTC market cycle and predicting future PA.

However, in major industry events or extreme market conditions, the correlation between BTC and Liquidity may be broken.

Research has found that the correlation between BTC and Liquidity tends to weaken during major events, such as the Mt.Gox Hacker attack and the TerraLuna collapse triggering the “Crypto credit contagion”.

The supply side trend will also affect the Liquiditycorrelation of BTC. The ‘BTC 1+ year HODL wave’ indicator and the Market Value to Realized Value Z-Score (MVRV Z-Score) can help determine the periods when BTC may deviate from its long-term correlation with global Liquidity.

During the bull run, the number of investors holding BTC for over a year will decrease as these holders realize profits. However, during the Crypto asset winter, the number of investors holding BTC will increase as they accumulate again.

In addition, when the MVRVZ value is low, the market price may be in line with or slightly lower than the realized price, indicating that BTC is below the fair price.

Therefore, the report concludes that combining global Liquidity analysis with on-chain indicators such as MVRVZ scores can provide a more comprehensive understanding of the price cycles of BTC, and help identify periods when sentiment may exceed Liquidity conditions.