Is Now The Time To Sell Bitcoin?

Bitcoin Exhaustion Signals

Most of the narrative surrounding bitcoin is, not surprisingly, focused on what the price is doing. More specifically, is the price going up or going down?

That is often coupled with references to the four year cycle and projections of when the BTC price will top based on that same cycle.

While there are trend exhaustion signals in the on-chain metrics, those same metrics are not signalling euphoria in the BTC price action.

The exhaustion signals, which started in July, can be explained in part by long-term holders who have taken profits and/or rotated into spot ETFs or altcoins. 

While much of the BTC price action can be explained by supply and demand dynamics, that is only part of the story.

Business Cycle

The business cycle and liquidity are key factors that add to the broader story and should inform the narrative.

More specifically, the denominator (U.S. dollar) against which BTC is measured is a key factor often overlooked when assessing the BTC price trajectory.

The global M2 money supply, which is a proxy for liquidity, continues to grow at a pace. That will impact the value of bitcoin in dollar terms.

As noted in our “Global M2 Is A Key Metric For Your Trading Toolbox” post, global liquidity is a significant driver of the BTC price.

Historically, if you overlay the price of Bitcoin against the global M2 money supply (adjusted by 3 months to account for the lag), there is a 90% correlation.

Since July, and while the BTC price has been in chop consolidation near its all-time high, the global M2 money supply has increased by 10%.

As important, the rate of change in global liquidity is increasing.

Currently, the correlation between the BTC price and global M2 money supply sits at just 30%.

That may in part reflect the stagnation in the business cycle.

While the business cycle has been muted, the recent FED interest rate decision will likely be a positive catalyst.

In addition, lowering interest rates could release equity in money market funds (currently sitting at around $7 trillion) that would seek a home in the stock market and hard assets like bitcoin.

Expansion Phase

While there is an awareness of the impact of the liquidity cycle and how that influences future outcomes for BTC, the psychology of the markets plays its part and can weigh on sentiment.

That said, the balance of probability based on the current framework, and despite the unknowns, indicates that BTC may be entering an expansion phase with more price action to the upside.

While markets can surprise to both the upside and downside, the current framework suggests that conditions remain supportive and not yet a time to be defensive.