Global asset liquidity has increased, so why has Bitcoin fallen by 50%?

Bitcoin plummeted 50% from its all-time high in just four months, while global liquidity increased by approximately $5 trillion during the same period. This counterintuitive trend, where "price follows liquidity," has caused deep confusion in the market.

Chris Tipper, Chief Economist at Ainslie Group, pointed out that this liquidity increase failed to support Bitcoin's price mainly because funds flowed into specific sectors rather than the crypto market.

Tipper stated that the global liquidity increase was primarily driven by the People's Bank of China injecting funds, with about $1 trillion already pumped in by 2025, and likely another $1 trillion this year.

However, China has long banned Bitcoin-related transactions, so this large-scale liquidity did not flow into Bitcoin but instead went into gold reserves, domestic infrastructure, and the real economy.

Therefore, if we exclude China as a variable and focus solely on the Western markets where Bitcoin responds, we can see that the related momentum peaked as early as October last year and has been weakening ever since.

This analytical logic is well supported in the gold market. During the same period, gold prices repeatedly hit record highs with moderate pullbacks, forming a stark contrast to Bitcoin's weak performance and visually revealing the divergence between the two asset classes.

Additionally, the US Dollar Index (DXY), an important indicator of Western liquidity, also seems to confirm Tipper's view. Recently, DXY rebounded from lows due to Middle East geopolitical tensions, and its strength poses a bearish signal for Bitcoin.

Looking ahead, Tipper believes that whether Bitcoin can recover depends on whether Western liquidity momentum can rebound. This condition may come from the Federal Reserve taking actions to address market pressures or a weakening dollar. But before that, this divergence clearly reveals the flow and vacuum zones of liquidity.

#BTC #DXY