Understanding Bitcoin’s True Market Drivers: The Liquidity Factor

In a recent episode of Crypto Insider, Ran Neuner discusses a crucial insight about Bitcoin's market cycles, asserting that global liquidity and the Purchasing Managers' Index (PMI) are the real influences on Bitcoin's price, not the commonly referenced four-year halving cycle.

Key Takeaways

Bitcoin’s price cycles are primarily influenced by global liquidity rather than the four-year halving cycle.
Historical patterns show that major price movements correspond with liquidity injections from central banks.
The PMI serves as a critical indicator for market conditions, impacting Bitcoin’s performance.
Current market trends indicate a decoupling of the halving cycle from liquidity trends.
Selling during the current period could lead to losses, as significant liquidity is expected to return soon.

Bitcoin liquidity cycle chart highlighting PMI and global liquidity as true drivers of bitcoin price, not the halving calendar.

The Illusion of Halving

Neuner opens by cautioning against selling cryptocurrency based on the belief that the current cycle has concluded. He points out that while Bitcoin has historically peaked around this time in the post-halving years, associating this pattern with a bear market is misleading. Neuner emphasizes that the three halving cycles used for analysis provide insufficient data to validate this narrative fully.

Instead, he has combined various data points—macroeconomic, liquidity, equity, and political factors—into a single model. His findings suggest that while halving events play a role in price changes, the driving force is significantly larger and has not yet manifested in the current cycle.

Liquidity: The True Driver Behind Bitcoin Prices

According to Neuner, the primary influence on Bitcoin's price is quantitative easing and the overall increase in the global money supply. He recalls that following Bitcoin’s first halving in late 2012, its price surged from $10 to $1,250 as the Federal Reserve injected $85 billion monthly into the economy. This marked the beginning of a massive liquidity influx, leading to substantial price increases.

When the Fed began tapering its liquidity, Bitcoin’s price dropped significantly—from around $1,000 to $150—a decline Neuner attributes directly to the withdrawal of liquidity rather than the halving cycle itself.

Neuner traces similar patterns through subsequent years, noting that the major Bitcoin price surges from $1,000 to $20,000 in 2017 and from $4,000 to $69,000 during the COVID-19 pandemic followed extensive global liquidity injections from various central banks.

The Role of PMI and Institutional Influence

Neuner introduces the global Purchasing Managers’ Index (PMI) as a vital indicator of economic expansion or contraction. He explains that a PMI reading above 50 typically signals the return of liquidity and serves as a compelling threshold for Bitcoin prices. Historically, readings above 55 have indicated the start of significant bull runs for Bitcoin.

However, he points out that in the current cycle, the Fed's liquidity actions and PMI movements have not aligned with the halving events. Instead, the last two years have seen a tightening of liquidity and a stagnant or declining PMI, which may explain why Bitcoin has not performed as expected this time around.

A Cautionary Note for Retail Investors

Neuner offers a critical observation: Bitcoin has never entered a bear market during periods of expanding liquidity. With indications that the Federal Reserve may soon end its tightening, Neuner anticipates a resurgence in liquidity and rates, pushing the PMI upward and prompting institutional interest to flow back into risk assets.

He warns potential sellers that if they act out of fear regarding the halving cycle, they risk selling their assets at a low point, just as institutional investors are preparing to capitalize on impending liquidity shifts. Neuner concludes that the four-year cycle is not a valid framework for understanding the current markets, asserting, “This cycle isn’t over. In fact, if anything, this cycle hasn’t even begun.”