Matrixport: Bitcoin's Price Surge May Face Short-Term Pressure, Investors Should Watch U.S. Treasury Issuance Policy

On February 21st, Matrixport issued a weekly report titled "How Liquidity and Macroeconomic Indicators Impact Bitcoin": "During Janet Yellen's tenure as Treasury Secretary, the U.S. Treasury adjusted its debt issuance strategy, favoring short-term Treasury bills (T-bills) over long-term bonds. With fewer long-term bonds issued, the bond yield remained stable, reducing the attractiveness of fixed-income assets and prompting investors to turn to high-yield options such as Bitcoin and stocks. Additional liquidity enhanced risk appetite, further supporting Bitcoin's bullish momentum. However, under Scot Bessent's leadership at the Treasury, this strategy may be reversed. Resuming the issuance of more long-term bonds could increase yields, tighten liquidity, and weaken demand for risk assets. If financial conditions tighten, Bitcoin's recent uptrend could face pressure. Investors should closely monitor the Treasury's issuance policy as it is a key driver of liquidity and market sentiment." "The U.S. Dollar Index (DXY) is another crucial macroeconomic factor influencing Bitcoin price fluctuations. DXY measures the strength of the dollar against a basket of foreign currencies. The stronger the dollar, the tighter global liquidity, and the lower the attractiveness of risk assets such as Bitcoin." "Inflation data also plays a significant role in influencing Bitcoin price trends. The Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) are key inflation indicators that the Federal Reserve monitors. Lower-than-expected CPI data indicates cooling inflation, which may prompt the Fed to adopt a more hawkish policy stance. This, in turn, would increase market liquidity and risk appetite, creating a bullish environment for Bitcoin." "Another key macro indicator is the (global) money supply (M2), which measures the total amount of currency circulating in the economy, including cash, deposits, and other liquid assets. When M2 expands, liquidity in the financial system increases, leading to a capital inflow. This excess liquidity often boosts investor risk appetite, driving up the demand for risk assets like Bitcoin. Conversely, when M2 contracts, liquidity tightens, and speculative investment faces challenges. By the end of 2023, the M2 supply stopped contracting, facilitating Bitcoin's return above $40,000. If the Fed starts to increase M2 again, Bitcoin may experience another liquidity-driven uptrend. However, if M2 grows too rapidly, inflation could rise, prompting the Fed to tighten monetary policy, which would be unfavorable for Bitcoin. For Bitcoin, the ideal situation is moderate M2 growth without excessive inflation, ensuring liquidity and stable economic conditions."