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As bitcoin (btc) approaches the $70,000 mark, the crypto community is abuzz with predictions of a potential surge to $100,000, accompanied by a major altcoin season. Amid this fervor, crypto analyst Axel Bitblaze has x.com/Axel_bitblaze69/status/1846635215407796254″ target=”_blank” rel=”nofollow”>provided an analysis on x, examining whether the necessary liquidity and catalysts exist to propel bitcoin to such heights.
Bitblaze emphasizes the critical role of liquidity in the crypto market. Drawing parallels with previous bull runs, he notes: “Our space is totally driven by one thing, that is, liquidity.” It refers to the bull markets of 2016 and 2020, both of which were significantly boosted by rising liquidity. This time, the question is whether similar or larger liquidity events are on the horizon to drive the price of bitcoin higher.
bitcoin's #1 Rise Will Be Driven by Stablecoins
A cornerstone of Bitblaze's analysis is the current state of the stablecoin market. He describes stablecoins as “the gateway to the cryptocurrency industry,” underscoring their indispensable nature for the cryptocurrency ecosystem. The total market capitalization of stablecoins has risen to $173 billion, reaching its highest level since the collapse of TerraUSD (UST).
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Tether (USDT) remains the dominant player, accounting for 69% of the total stablecoin market cap at $120 billion. Bitblaze highlights the historical correlation between btc prices and USDT market cap, stating: “Between March 2020 and November 2021, USDT MCap increased 17x, while btc price increased 16.5x” .
However, since March 2024, even though the market capitalization of USDT continues to rise, the price of bitcoin has remained relatively stagnant. “This indicates that there is a lot of liquidity waiting to enter btc and cryptocurrencies. I guess they'll start rolling out soon, right? says the analyst.
#2 FASB rule change
Another significant factor is the impending change in accounting standards by the Financial Accounting Standards Board (FASB). Currently, publicly traded companies face challenges in holding bitcoin due to unfavorable accounting treatments.
Bitblaze explains: “Let's say a company bought 100 btc at $67,000 each. “If btc drops to $60,000 and then rises to $68,000, the company still needs to report it at $60,000… they will have to show it as a loss even though it is a profit.” This results in misleading earnings reports and negatively affects stock prices, discouraging companies from investing in bitcoin despite its potential as an asset.
The FASB's next rule change, set to be implemented in December 2024, is poised to address this issue. Under the new guidelines, companies will be able to report the fair value of their bitcoin holdings based on market prices at the end of the reporting period. Bitblaze suggests that this regulatory change could incentivize more corporations to adopt bitcoin as part of their balance sheets.
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He cites MicroStrategy as a precedent and notes that since August 2020, the company has accumulated 252,220 btc worth $17.4 billion, currently making a profit of $7.4 billion. With S&P 500 companies collectively holding approximately $2.5 trillion in cash and cash equivalents (assets vulnerable to inflation), bitcoin presents itself as an attractive and inflation-resistant alternative.
#3 Expansion of the M2 money supply
Bitblaze also delves into the macroeconomic picture, particularly the M2 money supply, which includes cash, current deposits, and other easily convertible types of money. Currently, the M2 money supply stands at $94 trillion, almost 39 times the entire crypto market capitalization.
Bitblaze references an analysis that indicates that “for every 10% increase in the M2 money supply, btc pumps out 90%.” Even though the M2 money supply is about 3% higher than its previous peak, bitcoin has yet to surpass its 2021 highs, suggesting that ample liquidity remains untapped.
“Currently, M2 money supply is almost 3% higher than its last peak, while btc is still below its 2021 high. With global rate cuts coming alongside quantitative easing, fiat money It will become a worse investment. As Ray Dalio said, #Cash is garbage# and now this gigantic money supply will find a way into different asset classes, including cryptocurrencies; says the analyst.
#4 Switching Money Market Funds to bitcoin
Since November 2021, money market funds have risen to $6.5 trillion as investors sought the safety of Treasury bills amid rising interest rates. However, with the Federal Reserve initiating rate cuts and signaling more to come, Treasury bill yields are expected to decline, likely triggering a significant outflow of funds from the money market.
Bitblaze predicts: “This will trigger a massive outflow of funds from the money market as Treasury bill yields decline,” suggesting investors will look for higher returns on riskier assets like bitcoin and other cryptocurrencies. He refers to these digital assets as “the fastest horses” in a QE environment, and predicts that this shift could channel substantial capital into cryptocurrency markets.
To quantify potential inflow, Bitblaze aggregates available liquidity sources: M2 money supply of $94 trillion, money market funds totaling $6.5 trillion, cash holdings of S&P 500 companies worth $2.5 trillion and stablecoin market capitalization of $173 billion. This brings the total to approximately $103.17 trillion, which is 43 times the current total crypto market capitalization.
He further addresses skeptics and concluded: “For a $200 billion influx, only 0.19% of this account needed to go into cryptocurrencies. For those who think this is not possible and 200 billion is too much, btc ETFs had over $20 billion in net inflows despite sideways price action, no rate cuts and no QE.”
At the time of publication, btc was trading at $66,944.
Featured image created with DALL.E, chart from TradingView.com
